A steady stream of data this morning from European nation’s points strongly toward the economic recovery gaining traction in the region. The session was kicked off early by stronger than expected Swiss GDP reading from Q4 which came in at 0.9% quarter-on-quarter beating consensus expectations of 0.5%. The unexpected quickening of pace in the Swiss economy came on the back of rising investments, which rose 4%, offsetting falling exports. The SNB President Hildebrand said recently that the economy is gaining momentum as companies boost spending and low unemployment leaves money in consumers’ pockets to spend. This data was reinforced by the SVME-PMI, also released this morning, which showed Swiss manufacturing growth accelerating to a seven-month high. Despite the solid Swiss data this morning the franc remained under pressure as the unwinding of safe haven plays which had boosted the franc recently took their toll and offset the strong data.
Turning to Euro-zone PMIs, euro-area manufacturing growth increased to the fastest pace in more than 10 years, data this morning showed. The figure was bolstered by strong PMI showings from Italy, France and Germany earlier in the session indicating that the manufacturing sector is helping to boost economic growth in the region as exports continue to counter the impact of austerity measures on domestic demand. Chief Economist at Markit Economics, Chris Williamson, said that after “having slowed late last year, manufacturing growth has revived to a pace even stronger than the 3.3% quarterly rate seen at the peak last May. Especially encouraging is the indication that growth is picking up in the region’s periphery, led by rising exports”.
Finally, German unemployment dropped sharply, falling 52,000 (vs. expectations of 18,000) to 3.07 million or 7.3%, the lowest since September 1992 as demand for cars and machines surged. As economic growth continues to broaden in Germany companies are investing in hiring new workers to help meet the new demand for goods which will also boost domestic demand as more citizens go home with paychecks. There are however, some concerns that the divide between Germany and some periphery nations is widening to worrying levels. While unemployment plunged in Germany, Ireland’s unemployment more than tripled over the same period to 13.4%, the jobless rate in Spain was 20.3% in December and in Greece it was 13.9% in November. As German growth continues apace with demand for exports from Asia underpinning growth and consumer consumption remaining steady the divide between periphery states and Germany is only likely to widen which could have ominous implications for the euro-region.
The euro caught some fresh bids upon the release of strong PMIs and German unemployment data toward 1.3850. However, as long as the pair is unable to break and close above the 1.3880 level then we could see the euro continue to consolidate around this region before making a move back lower. On the bullish side, the recent comments from ECB Draghi and others may keep the euro underpinned as speculation ramps up of the ECB hiking its interest rates sometime soon if inflationary pressure picks up. On balance then, after a raft of strong fundamental data from the euro-region this morning and speculation of rate hikes we view the euro risks skewed to the upside with further gains likely in Eur/Usd.
Written by Jonathan Granby, DailyFX Research Team
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