IFO is not painting an encouraging picture for growth. Kit Juckes, Chief Global FX Strategist, analyzes EUR outlook.
China’s holding the Euro up – for now
The IFO index was slightly worse than the Eurozone PMI. None of this is euro-friendly, but fortunately, the Chinese Politburo’s plans to support the economy and enthusiasm for a stable yuan have increased risk sentiment, keeping the euro’s head above water.
However, relative short-term rates (which have been the main driver of the EUR/USD pair this year), don’t support the Euro at all. That and positioning, suggest that were it not for positive risk sentiment, the EUR would be markedly weaker. Yikes!
Finally, EUR/GBP rate differentials have stabilised, EU-UK PMIs are moving together, and EUR/GBP looks set to settle into a new, slightly higher range.
