Outlook: Euro sun shines
Saturday 26 June 1999
SPOTTING THE green shoots of recovery is a risky business. A hopeful tendril of growth can so easily be trampled or frozen by a late frost. But now there is a decent swathe of green it is pretty safe to conclude that summer is on its way over on the Continent. Yesterday's figures showing buoyant French consumer spending were not the first sign that the Euroland economy is past its trough.
This is not to say that all those euro-spenders are on the verge of a fantastically lush surge of growth. The performance in the first four or five months of this year was so disappointing that the weaker countries, Germany and Italy, would have to turn on a sixpence to achieve some of the more optimistic forecasts. They might see GDP expand by 1 to 1.5 per cent this year.
Even so, what matters to the financial markets is whether the gap between US growth and European growth will be narrower than the euro-dollar exchange rate had earlier priced in. And both sides of the gap have now shifted closer. For the Fed has made it plain it is going to slow down the US economy by raising interest rates. Although this could temporarily support the US currency, especially if it takes more than one rate increase to achieve, over a slightly longer horizon it will weaken it.
That this growth calculus is filtering through in the currency markets is evident from the modest recovery the euro has made this week. Big movements are very unlikely ahead of the FOMC meeting on Tuesday and Wednesday - this is no time be be making big bets on euro prospects.
However, after this week, further good news on the Continental economies could trigger bigger currency moves. For those heading to the sunny beaches of France, Spain and Italy there is little to lose from buying summer holiday cash now.
So far the pound has been stable against the dollar and strong against the euro, as always caught in the cross-currents between the more important currencies. But this pattern could change, depending on how growth and likely interest rates evolve in the UK. The pundits disagree on what the probable crossover of US and UK interest rates this week will imply. Some predict a flood of funds into dollars, while others see sterling as a haven from a potential Wall Street crash. The markets are voting against sterling, whose index has declined pretty steadily for two weeks.
- 1 Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
- 2 18th century sex toy found in 'toilet of sword fighting school' in Poland
- 3 US? China? India? The 10 biggest economies in 2030 will be...
- 4 'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
- 5 Rebecca Francis accuses Ricky Gervais of using 'influence' to target female hunters after receiving barrage of death threats
General Election 2015: David Cameron catching up in polls – but he badly needs a clear lead
Alan Rickman admits editing 'terrible' script with friends in Pizza Hut behind backs of writers on Robin Hood: Prince of Thieves
South Africa xenophobic attacks: Shops looted and violence on streets of Johannesburg as foreigners are forced to hide in police stations
18th century sex toy found in 'toilet of sword fighting school' in Poland
'I wish my teacher knew...': Young students share their 'heartbreaking' worries in notes
The only black face in the Ukip manifesto is on the page about overseas aid
If I’m being racially abused I don’t need a stranger with a saviour complex to rescue me
Ukip is the only main political party to not address LGBT rights in its manifesto
Food banks: One million Britons will soon be using them, according to Trussell Trust
BBC election debate: The one photo that summed up the whole 90-minute leaders debate
Religion isn't growing, it is becoming vigorous in its demise, says philosopher AC Grayling
iJobs Money & Business
£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...
£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...
£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...
£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...