Against a basket of ten of the world’s most actively traded, freely-floating currencies the euro and the pound were, on average, unchanged from the week. Against one another the difference over the seven days was nine ticks; from 1.1770 to 1.1761. The euro strengthened by a cent against the US dollar. Compared with a month ago the story is very similar: Sterling/euro is unchanged and both currencies are about three and a half US cents firmer.
The lack of net change is mainly the result of a dearth of news and economic data. Whilst investors do, from time to time, jump this way or that from currency to currency without any obvious provocation, there usually needs to be some underlying hope or concern to make them lean in a particular direction. None of that was present this week. Euroland was an oasis of relative political calm and Westminster’s anti-Europe faction was keeping a low profile.
Economic data releases were few and mostly unimportant. A better than expected monthly increase in French industrial output was canceled out by a worse than expected decline in Italy. Pan-Euroland industrial production fell by only -0.6% in the year to April, a figure only half as bad as analysts had predicted. Except for Greece, where consumer prices fell by -0.4% in the year to May, inflation figures from around Euroland were not far adrift from the 1.4% achieved by the euro zone as a whole.
The UK cost at offerings was more numerous and mostly better than those from across the Channel. The RICS housing price balance came in at +5%, its strongest reading for nearly three years. A monthly -0.5% fall in manufacturing production and an anemic 0.1% increase in the broader industrial output would have been a disappointment, had investors not been expecting even less impressive numbers. The NIESR’s estimate of 0.6% growth for the UK economy in the three months to May did the pound no harm and the employment figures showed a record number of people in work, another fall in jobless claims and unemployment steady at 7.8%.
There was one specter stalking the euro at the end of the week though. The German constitutional court was considering a claim by 37,000 German citizens that their taxes should not be spent on efforts by the European Central Bank to support the sovereign bonds of, say, Italy or Spain through the proposed Outright Monetary Transactions (OMT) scheme. OMTs are a key weapon in Mario Draghi’s promise to do “whatever it takes” to preserve the single currency. Thus far he has done nothing at all but without the threat of OMTs, his pledge would look extremely hollow. If the constitutional court were to find that the ECB is acting beyond its mandate, the consequences for the euro could be severe.
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