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Euro is at its highest levels in more than a week with more confidence in the region’s economy

Autor: Financial Market
3 min

Euro rose to its highest levels since Monday of last week against the US dollar, reaching the level of 1.07305 around morning.

While the euro is trying to reduce its losses extended since the end of last week against the British pound today, by reaching the level of 0.87262, which is the highest since the beginning of this week’s session.

Euro’s gains today came with more positive data that indicated more confidence from institutional investors in the euro zone economy. The German ZEW Economic Sentiment Index for the current month recorded its first positive reading since last April, at 9.8 points, which is higher than expectations of 5 points and significantly higher than the previous reading of -1.1 points.

As for the entire euro zone, the ZEW Economic Sentiment Index also recorded a reading of 13.8 points for the month of November, which is also the highest since last February, and it is a positive reading for the second month in a row after five consecutive months of lack of confidence.

This confidence comes despite the timid growth figures for the Eurozone economy. Today we also witnessed the preliminary figures for the gross domestic product (GDP) for the third quarter.

While the region’s economy contracted by 0.1% during the third quarter compared to the second quarter of this year, also in the same period, the GDP recorded a slight growth of 0.1% compared to the same period last year. These two readings were in line with analysts’ consensus expectation.

In the labor market as well, the region’s economy was able to add about 500,000 jobs during the third quarter, which represents a growth of 1.4% during the third quarter compared to the same period last year, according to preliminary data.

While it seems that these data today have enabled the euro to resist the pressures it was exposed to from the pound sterling, with more British economic data indicating the possibility of inflation remaining high for a longer period than expected, and this time with labor market data.

The U.K. Average Earnings Index +Bonus, exceeded analysts’ average expectations again in the latest reading for the three months ending last September. Wages witnessed a remarkable growth of 7.9% during that period compared to the same period last year, which was higher than the expected 7.4% but lower than the previous revised reading of 8.2%.

In addition, the labor market continued to return some positive signs. About 54K jobs were added during the three months ending last September compared to the same period last year, which is largely far from expectations of losing about 200K jobs. While today’s new reading broke a three-month streak of job losses.

Also, during those three months, the unemployment rate held steady at 4.2%, which was slightly lower than expectations of 4.3%.

In contrast to these positive numbers, we witnessed a further noticeable increase in the number of unemployment claimants last October by approximately 17.8K claims, bringing the total number to 1.5679 million of claimants.

While this reading represents double the previous revised reading, it recorded an addition of 9K claims and was higher than expectations for an addition of 15K new claimants.

It seems that these data, which are added to a series of positive figures from last week for GDP, may help the Bank of England to maintain its position regarding its monetary policy during the coming period.

This is what was spoken by central bank officials, led by Governor Andrew Bailey, who indicated that there would be no interest rate cut soon.

While today’s data helped provide some temporary support for British gilt yields at the beginning of today’s trading session after they reached levels since the beginning of the week.

The yield on 10-year government gilts reached the level of 4.343% at approximately 8:10 a.m. GMT, before declining to approximately 4.285% during the next hour. While these levels still lie slightly near the lows from about a month ago.

In the bond market as well, European bond yields are trying to provide more support to the euro by consolidating a little and stopping the series of declines that have been extending for about a month, by supporting the positive data that we witnessed today, which seem to fuel expectations that inflation will remain high for a longer period than expected as well.

The yield on ten-year European government bonds reached 2.708%, after reaching its lowest level during the week at 2.684%.

Meanwhile, European ten-year bond yields are trying to reduce the gap between them and their British bond counterparts, as they reached -1.598% today. This comes within an upward trend extending from about twenty days of narrowing the gap.

Also today, European bonds are also trying to resist the widening gap between their yields and US Treasury bond yields for the same term, in an attempt to stop the continuous widening of this gap since last April.