Today the ECB’s (European Central Bank) Chief Economist delivered a speech suggesting that the Eurozone economy was beginning to improve following the aggressive stimulus over the last year. The speech was slightly ill timed considering that this morning the latest Eurozone inflation data was released and it fell below the expected level. There was earlier in the year an inflation warning for the turn of the year from the central bank employees, which now looks like it may be coming to fruition.

Merkel negotiations covering the Euro

Angela Merkel has managed to bring the parties back to the table to discuss the formation of a Germany coalition Government, however talks are not going to commence until January 2018. The Euro did suffer a loss when the news broke that the two sides have walked away from the table. But since the news of talks being back on the Euro has made back the losses.

There has also been a series of positive data releases over the last few months with real optimism that the Eurozone economy is improving. However, the Eurozone is not without its problems across the continent. Spain and Italy have both got issues with banking and politics, furthermore the crisis in Greece is not over, with huge debts still needing to be repaid.

For as long as the major issues stay at bay and Germany can form a government, things are likely to hold. However, there should still be a thought in the background that if some of the headline problems are no longer controlled the Euro could suffer.

Sterling is likely to start to make back some of its losses against the Euro over the next few weeks as the Brexit talks seem to progress. Should there also be some uncertainty with the issues across the Eurozone I don’t think there will be too much time before the GBP/EUR exchange rate lifts back to the 1.20 level.