Talking Points:
- Euro continues its rise on the Dollar after strong German jobs data and manufacturing PMI
- But Euro loses gains versus the Pound after UK construction PMI boosts Sterling
- There are still concerns about the Euro-Zone’s growth prospects in 2017.
The Euro continued to rise against the US Dollar on Wednesday morning after Germany’s unemployment rate unexpectedly dropped in October. The jobless rate in the Euro-Zone’s largest economy fell to a seasonally adjusted 6.0%, from 6.1% in September, according to a report by the German Federal Statistical Office. Analysts had expected the rate to remain unchanged at 6.1% last month.
The number of unemployed people fell by a seasonally adjusted 13,000 from a month earlier, compared to forecasts for a drop of just 1,000. Jobless claims had unexpectedly risen by 1,000 in September in what had been its first increase in a year. But unemployment in Germany is now at a reunification low of 2.662 million.
The Euro was also helped by news that Markit’s final Euro-Zone manufacturing Purchasing Managers’ Index came in at 53.5 in October, up from the flash estimate of 53.3 and September’s reading of 52.6.This marks a 33-month high and is the steepest rate of improvement in operating conditions since January 2014, reinforcing hopes that the fourth quarter will see a pick-up in Euro-Zone growth.
The Euro had already been making gains on the Dollar in the run up to the data releases. The Dollar hit its lowest level in nearly three weeks against the Euro Tuesday. The Greenback was spooked by US election jitters overnight after positive polling figures came in for Donald Trump. In response, traditional safe havens such as Gold and the Swiss Franc all saw large inflows, and the Dollar’s recent gains were reversed. The Dollar made overnight losses against the Euro, Yen and Swiss Franc.
Chart 1: EUR/USD 1-minute Chart (November 2, 2016 Intraday)
The Euro, however, lost the gains it made on the British Pound earlier in morning trading after Sterling was boosted by Markit’s latest UK construction PMI, which showed an unexpected uptick in Britain’s construction sector growth. EUR/GBP had reached the mid-£0.8900s earlier in the session, but currently trades around £0.9016.
Chart 2: EUR/GBP 1-minute Chart (November 2, 2016 Intraday)
And despite the positive data there are still concerns about the Euro-Zone’s growth prospects in 2017 owing to political uncertainty in the region. There are general elections in Germany and France next year, while the constitutional referendum in Italy is billed as vote of confidence in Matteo Renzi’s pro-EU government and could therefore eventually threaten Italy’s future in the Euro-Zone. Brexit, of course, also threatens the area’s political stability as well as its exports to the UK. The UK says it will trigger Article 50, the formal two-year exit procedure, by the end of March 2017.
Read more: Better Data, Higher Inflation Expectations Lifting Yields and Euro in Short-term
--- Written by Oliver Morrison, DailyFX Research
