The Pound yesterday succumbed to major pressure from the Euro, taking the rate down to 8 year lows, sitting just above 1.08. The main drop came after record Purchasing Managers Index data for Germany, along with better than expected reading for the entire Eurozone. Essentially rather than the movement yesterday being due to Sterling weakness it was very much Euro strength.
There is a large amount of optimism surrounding the major powers in Eurozone with several of the main countries performing and some of the weaker economies coming back to growth. The big question that now remains for the Eurozone is whether or not the European Central Bank (ECB) will act on the latest movements. The ECB have flirted with the idea of tapering back the bond buying program and have been reluctant to raise interest rates, but surges in the economy could force their hand.
Mario Draghi, President of the European Central Bank will speak tomorrow at the Jackson Hole Symposium which is a meeting of many of the world’s economic leaders. Mr Draghi used this platform last year to announce the start of the Quantitative Easing and could potentially use it once more to hint at economic policy.
The one concern for the Eurozone is the currency could begin to get to strong. If the Euro does move closer to parity then the cost of buying European goods will increase and could cause buyers to look elsewhere. This could have a longer term effect on the growth for EU, furthermore the low rate could start to have a significant effect on British tourists coming to Europe as it may get to expensive. For many of the southern EU nations where they rely on tourism it could have a major impact. The issues presented by a extended period of Euro strength does seem to be something on the minds of the ECB, with their suggestions recently that a strong Euro was not desirable.