The euro made a rare 2018 appearance at the bottom of our one-day performance table on Tuesday as investors began to note the German political concerns we first highlighted here yesterday. EUR/USD opened in the low 1.24’s but it was a one-way street all the way down to a low around lunchtime in Europe of 1.2325; the weakest since Wednesday last week. The EUR has failed to rally overnight and after a generally disappointing set of ‘flash PMI’ numbers, is now nervously eyeing support from the spike low after US CPI around 1.2285.
In economic data, Eurozone business activity continued to rise at a decent pace in February, albeit with the rate of expansion cooling from the near 12-year high recorded in January. Price pressures and employment growth also remained elevated, though likewise saw rates of increase ease slightly. Business optimism about the coming year meanwhile ticked higher. The headline Markit Eurozone PMI fell from 58.8 in January to 57.5 in February, according to the flash estimate, which is based on approximately 85% of usual final replies. Markit noted that, “By country, growth in Germany came in at a three-month low, while in France the composite PMI moderated to the weakest for four months. However, in both cases the PMI readings remained at levels indicative of strong growth, close to recent seven-year highs. Business activity growth meanwhile also slowed across the rest of the eurozone, though still registered the second-largest expansion in nearly 12 years… At the eurozone level, the goods-producing sector continued to record a faster pace of expansion than the service sector, though growth of output and new orders slowed in both cases. However, both sectors continued to enjoy the best periods of expansion seen for seven years.”
In a very hard-hitting article for Handelsblatt, former ECB Executive Board Member Jurgen Stark writes that, “the ECB’s policy interest rate has lost its steering and signaling functions. Another is that risks are no longer appropriately priced, leading to the misallocation of resources and zombification of banks and companies, which has delayed deleveraging. Yet another is that bond markets are completely distorted, and fiscal consolidation in highly indebted countries has been postponed. So, the benefits of the ECB’s policy are questionable, and its costs indisputable. The current ECB policy is thus simply irresponsible, as is the utter lack of any plan for changing it”. The EUR opens in North America this morning at USD1.2325 and EUR/CAD1.5600.