Euro Flat on Back of Declining Eurozone Production

Alan Penny

13 November 2019

3 min read

waving European flags

  • Possible recession in Germany remains a concern
  • European markets wary of potential US-China trade war escalation
  • UK posts lowest inflation since 2016

Eurozone industrial production declines less than expected

September saw industrial production in the Eurozone decline year-on-year for the 11th consecutive month. The drop, though, was less significant than expected, especially when compared to August.

Eurozone industrial production shrank by 1.7%, compared to the 2.8% YOY in August. The expected decline was approximately 2.3%. It was also the least significant decline since May, when output shrank by 0.8%.

All goods experienced a decline in production except for non-durable consumer goods, which rose by 1.6 percent. Intermediate goods experienced the most significant drop at 3.9%. Energy production dropped by 2.6%, while capital goods fell by 1.4%.

On a month-on-month basis, production increased by 0.1%

On a month-on-month basis, production increased by 0.1%, though experts expected it to drop by 0.3%, which likely helped to steady the euro. The euro remained flat against the US dollar and the pound sterling, with the pairs trading at $1.1016 and £0.857 respectively.

Weak German GDP figures could push the euro down

The slightly better than expected Eurozone industrial production figures allowed the euro to hold steady against other currencies. This might change as there are still strong concerns over a German technical recession.

On Thursday, the largest Eurozone economy will release flash Q3 GDP economic data. If the German economy has declined a second time in as many quarters, the euro will likely slide.

September saw German exports experience the highest level of growth in two years. Some experts feel this indicates Germany may have managed to avoid another technical recession. Germany’s manufacturers rely on exports, and the trade war between the US and China has been making their life very difficult.

US dollar steady amid US-China trade war concerns

The euro also managed to hold steady due to slight weakness in the US dollar due to comments from US President Donald Trump on the US-China trade situation.

While President Trump stated that a deal would be signed soon, he didn’t specify any concrete details. Furthermore, he said that while China is “dying” to make a deal, the US is “deciding whether or not we want to make a deal.”

Trump also explained that a deal would only be signed if it was beneficial to “the United States and our workers and our great companies.”

He warned, though, that if a deal isn’t made, the United States would “substantially raise those tariffs”, which would also happen with “other countries that mistreat us too.”

Some of the President’s statements helped settle worries around the US dollar. However, that was not really the case in the Eurozone. European markets are concerned that President Trump might also have been referring to the European Union. This is after a temporary delay was put on increasing tariffs on European cars and parts.

If the tariffs do go through, they will create even more pressure on the already struggling German economy. This would not do the euro any favors.

Pound flat against EUR on back of weak inflation

The pound sterling traded sideways against the euro as inflation figures hit a three-year low. According to the Office for National Statistics, inflation slid to 1.5% in October, compared to expectations of 1.6%.

While the decline might only be temporary, it has still had a negative effect on market sentiment towards the UK economy. However, the focus remains on the political landscape ahead of the elections in December. This is likely why the pound hasn’t experienced a more significant movement and has allowed the GPB/EUR exchange rate to remain steady.

Written By
Alan Penny

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