French Fiscal Concerns Push Euro to 17-Month Low
Summary
The euro fell to its weakest level in 17 months on Monday as concerns over France’s public finances and political outlook intensified
US employment growth slowed sharply in September, reducing market expectations of another Federal Reserve rate rise in October
Euro area inflation climbed again in September, driven primarily by higher energy prices
Sterling recorded its strongest weekly gain against the euro since May, while extending its run of weekly losses against the dollar
The euro begins the week under renewed pressure after falling to a 17-month low on Monday. The currency has now declined for four consecutive weeks, with concerns over France’s debt levels and political gridlock ahead of next year’s presidential election weighing heavily on sentiment. French government debt has also been caught in the recent global bond sell-off, adding to pressure on the single currency.
The weakness comes despite inflation moving further above the European Central Bank’s target. Euro area inflation rose to 3.8% in September from 3.2% in August, with energy recording the strongest increase among the main components. The ECB raised its deposit rate to 2.50% at its September meeting and continues to describe its approach as data-dependent. On Thursday, the Bank will publish the official account of that meeting.
Across the Atlantic, Friday’s employment report changed the near-term picture for US interest rates. Nonfarm payrolls increased by just 29,000 in September, while unemployment edged up to 4.2% and employment figures for the previous two months were revised lower. The report was substantially weaker than economists had expected and prompted markets to reduce expectations of another Federal Reserve increase in October.
That leaves Wednesday’s Federal Reserve minutes as the main US policy event this week. The minutes cover the September meeting at which the Fed raised its target range by a quarter point. They will provide the official record of policymakers’ discussions at that meeting, which took place before the latest employment figures were released. The Fed’s next rate decision is scheduled for 28 October.
Sterling has followed a different path against the two currencies. The pound recorded its strongest weekly gain against the euro since May last week, while also heading for a third consecutive weekly decline against the dollar. The Bank of England held Bank Rate at 3.75% in September, with three policymakers voting for an increase. Its next decision is due on 5 November, while the next UK monthly GDP release is scheduled for 15 October.
Events to Watch This Week:
Tuesday 6 October: Euro area retail sales for August
Wednesday 7 October: Federal Reserve minutes from the September meeting
Thursday 8 October: ECB account of its September monetary policy meeting
The euro therefore enters the week facing pressure from both France’s fiscal position and a wider bond-market sell-off, while softer US employment data have reduced expectations of an immediate follow-up to September’s Federal Reserve increase. This week’s Fed and ECB accounts will provide further detail on the policy discussions behind both central banks’ most recent decisions.
Speak to the Orbis dealing team ahead of this week’s key events to discuss your upcoming currency requirements.
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