Talking Points
- GDP data from France, Spain and Austria have focused attention on the ECB’s key problem: whether to tighten monetary policy when inflation is below target and the Euro is strong.
- While EUR/USD could see some profit-taking, further highs are likely in due course.
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France, Spain and Austria all released strong economic growth figures for the second quarter Friday, with GDP growth quarter/quarter hitting 0.5% in France, 0.9% in Spain and 0.8% in Austria. Taken together, they suggest the data for the Euro-Zone as a whole, due on August 1, could show year/year expansion of around 3% in the second quarter, up from 1.9% in the first.
This would be a headache for European Central Bank President Mario Draghi, who would like to normalize Euro-Zone monetary policy by withdrawing some monetary stimulus but has to take into account both below-target inflation and the tightening impact of a firm Euro.
He is expected to drop some hints on his thinking at the Jackson Hole symposium on August 24-26 ahead of the next meeting of the ECB’s governing council two weeks later, when the possibility of reducing the central bank’s asset-purchase program is likely to be top of the agenda.
Meanwhile, European stock markets are failing to make new highs like those recorded in the US while EUR/USD has reached its highest levels since 2015. Some profit-taking is likely near-term but the longer-term trend remains firmly upwards.
Chart: EUR/USD Weekly Timeframe (Dec 1, 2014 to Jul 28, 2017)
In this webinar, I discuss all these issues and what they mean for the outlook for the Euro and European stock markets.
--- Written by Martin Essex, Analyst and Editor
To contact Martin, email him at martin.essex@ig.com
Follow Martin on Twitter @MartinSEssex
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