The euro has not been so resilient over the last seven days. It was the weakest performer among the major currencies, falling by two cents against sterling and losing one and half US cents. The euro is also the biggest loser in the year to date, down by nine and a half US cents and nine and three quarter cents lower against the pound.
Last Friday afternoon the euro was looking quite perky. The story on the street was that the Eurogroup of EMU finance ministers was about to come to an accommodation with the Greek government. It prompted a relief rally that took the euro half a cent higher on the day. After the agreement was confirmed, that gain held through the weekend, lasting until the rot set in once again on Tuesday morning.
Since then the euro has been on the retreat. It took an expensive hit on Thursday afternoon, not because investors were actively selling it but because they were buying the dollar on the back of stronger-than-expected US economic data. As usual, when the market loaded up with dollars most of the action was in EUR/USD because that is where the greatest liquidity is to be found. A by-product of that move was a new seven-year high for sterling against the euro.
Whilst it would be an exaggeration to say that investors are complacent about Greece’s future within the single currency, last Friday’s agreement did provide the groundwork for a four-month breather before the next crisis. If Germany’s parliament approves the deal, and if the Tsipras government can stick to the promises it has made, the EC/IMF/ECB “Troika” – or, as Athens prefers to refer to it, the “Institutions” – will keep it afloat until June with another €7bn bailout (not that anybody is calling it by that name).
With lingering uncertainty about Greece and quantitative easing by the European Central Bank scheduled to kick off in March, investors were not really interested in the euro zone economic data. Nevertheless, it is worth noting for the record that deflation in the year to January was confirmed at -0.6% and that the EC measures of business and consumer confidence were mostly a little more upbeat in February.
The ecostats from Britain and the States were no great shakes but they were good enough to keep the pound and the dollar at the head of the field. A larger-than-expected government debt repayment cancelled out weaker-than-expected UK retail sales and the first revision to fourth quarter gross domestic product left quarterly growth unchanged at 0.5%. US inflation fell, as predicted, to -0.1% while durable goods orders jumped by 2.8% in January.
In the coming week America and Euroland will reveal their revised GDP data for Q4 and there will be the usual monthly round of purchasing managers’ index readings. The important US employment data come out on Friday. Potentially the most important event for the euro will be the ECB monetary policy statement on Thursday. Although the central bank is not expected to announce any new measures, investors will be keen to hear more about the mechanics of its quantitative easing programme.
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