Sterling Euro forecast: EZ manufacturing shows contraction

EURUSD: European Central Bank Expected to Act on COVID-19

For today’s Sterling Euro forecast, we’ll examine how the Euro took a hit yesterday, following weak manufacturing data. There was a large contraction, which won’t help investor confidence. We witnessed figures of 47.5, and anything below 50 indicates a contraction. Falls were seen in several key countries, such as Italy, France and Germany.

The engine room of the bloc, Germany, took a particularly large hit, with a fall to 44.1. This is a 6-year low, dragging down the rest of the Eurozone’s manufacturing output.

The European Commission had predicted an increase in growth for Italy of +0.2% this year. This is complete opposite of the prediction from the Organisation for Economic Co-operation and Development (OECD), who are predicting a fall of -0.2%. This highlights how uncertain growth in Italy will be this year, which will be a cause for concern amongst investors.

It is not all doom and gloom, however. There has been a slight improvement in Chinese manufacturing data, which is good news for the global economy. China is remaining stable on the growth front, while the Eurozone outlook is looking worse, which could result in Euro weakness. The bloc seems to be bearing the brunt of the global slowdown, with Brexit also weighing on the common currency.

ECB set to add stimulus

Eurozone unemployment held firm in March at 7.8%, while Consumer Price Index (CPI) data fell to 1.4%, going against the general consensus. Inflation is still some way from the European Central Bank’s (ECB) target of 2%. The pressure is now on the ECB to try and stabilise the Eurozone economy, what with weak growth and low inflation.

The ECB, which has pumped around €2.6 trillion in bond purchases into the struggling economy, recently ceased Quantitative Easing (QE) in December. The ECB has stated that it will delay plans to normalise monetary policy and increase interest rates.

Euro rate prediction

It has been reported that the ECB will offer more cheap loans, in an attempt to boost economic activity. This is not a good sign that the economy is coping well without QE. This situation has the potential to weaken the Euro

Brexit will continue to be the key driver on GBP/EUR and, unfortunately, the situation remains in limbo. I think the likely outcome will be a lengthy extension, which I think would keep GBP/EUR at current buoyant levels. Or there might be a small increase in GBP value, as we take a rushed, botched deal off the table.

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