Euro Lower After ECB Minutes and European Commission's Downgraded Forecasts

Market Reviews

The euro fell against the US dollar, despite better-than-expected data on industrial production of the Eurozone. Pressure on the euro was also exerted by reduced economic growth forecasts from the European Commission. According to updated forecasts, the Eurozone GDP will grow by 2.1% this year and slow to 2.0% next year. Eurozone inflation is expected to increase to 1.7% in 2018 and 2019, from the previously estimated 1.5% in 2018 and 1.6% in 2019.

German GDP growth forecast cut to 1.9% in 2018, down from 2.3% and to 1.9% in 2019, revised down from 2.1%. France GDP growth forecast reduced to 1.7% in 2018, down from 2.0% and to 1.7% in 2019, down from 1.8%. Italy GDP growth reduced to 1.3% in 2018, down from 1.5% and 1.1% in 2019, down from 1.2%. UK GDP growth downgraded to 1.3% in 2018, down from 1.5% and to 1.2% in 2019.

Minutes of the ECB's latest policy meeting gave no support to the single currency. According to the ECB minutes, the regulator will keep rates at a record low for as long as needed to raise inflation, and its interest rate guidance should be seen as "open-ended". ECB policymakers agreed that there was a need for retaining ample monetary policy stimulus to support inflation in the euro area and stressed that rates would move only if inflation continued to rise back toward the bank's target of almost 2%.

Eurozone industrial production increased by 1.3% mom, 2.4% yoy in May. Economists had expected growth of 1.2% mom and 2.1% yoy. German Final CPI slipped to 0.1% in June, down from 0.5% a month earlier. German inflation increased 2.1% over the year in June with core inflation up 1.4% y/y.

US CPI rose 0.1% mom, 2.9% yoy in June versus expectation of 0.2% mom, 2.9% yoy. Core CPI rose 0.2% mom, 2.3% yoy, matched expectations. Headline CPI accelerated from 2.8% yoy in May, core CPI accelerated from 2.2% yoy. Initial jobless claims fell by 18k to 214k in the week ended July 7. Continuing claims dropped by 3k to 1.739m in the week ended June 30.

Britain has finally published the Brexit White Paper titled “The future relationship between the United Kingdom and the European Union“. Brexit Minister Dominic Raab said in the forward of the document that “leaving the European Union involves challenge and opportunity. We need to rise to the challenge and grasp the opportunities.” And, “this is the right approach – for both the UK and for the EU. The White Paper sets out in detail how it would work.”