Germany moves into recession as growth all but stalls in Europe’s largest economy
Written by
Daily Currency Update
In Europe market expectations for a September rate cut have increased substantially as inflation falls back to their target rate of 2% and moreover signs are emerging of a recession in Germany as they experience weak demand both domestically and from overseas. Bank of France Governor, Francois Villeroy de Galhau, said; "It would be fair and wise to decide in favour of a new rate cut, unfortunately our growth simply remains too weak."The market expects no reduction in British borrowing costs this September as inflation remains sticky in light of an economy that is powering along. The manufacturing sector in the UK hit a broad based 26 month high driven by strong output, new orders and labour demand.
In the US, the purchasing managers index (PMI) fell below expectations coming in at 47.2 vs expectations of 47.5 which weighed on the US Dollar modestly. In addition, there was the release of the TechnoMetrica Institute of Policy and Politics Economic Optimism survey which beat expectations coming in at 46.1 vs previously recorded at 44.5, this slightly negated the effects of a softer PMI.
Key Movers
European Equity markets nervously learned of Volkswagen discussing plans to close factories in Germany for the first time ever which will be a massive blow not only to Germany but also to the Eurozone economy. Audi also followed suit and said they are to close down plants in Belgium. These events lent to a softer tone for the single currency through Monday's trading session.In the UK growth momentum, elevated wages and inflationary hotspots, is likely to keep the Bank of England from lowering interest rates in September. For the Pound, this suggests that any pullbacks from its current highs are likely to attract investors, as UK interest rates remain elevated compared to those in Europe and the US, making it an appealing option for investors.
The US Dollar made broad gains through Monday's trading session. The weekly mortgage applications are due later today along with balance of trade results, factory orders and the Federal Reserve's Beige book, these numbers will be scrutinised carefully as markets look to confirm the Fed will merely cut rates by 25 basis points or more when they meet in September.
Expected Ranges
- GBP/USD: 1.3075 - 1.3120 ▼
- GBP/EUR: 1.1840 - 1.1885 ▼
- GBP/AUD: 1.9515 - 1.9565 ▼
- EUR/USD: 1.1030 - 1.1075 ▼