The euro sustained its position in the green territory, even after the disappointing purchasing manager’s index in Germany. Apparently, the Eurozone was still far from stretching its economy, sending weariness to the stability of investments and businesses. In relation to this, the European Central Bank has made in time effort which can possibly offer a breathing space in the economy.
During the morning session, the euro opened at 1.12016 against the U.S. currency, extending the upward momentum. The pair eventually closed at 1.1282 with an intraday high of 1.1233 and an intraday low of 1.12015.
German PMI Skids
Markit’s flash composite Purchasing Managers’ Index revealed in its latest report that the growth in Germany’s private sector declined, which sent fears toward the recovery of the economy. The index eased to its 16-month low hurdled by the close-to-ground movement of the output services. From 53.3 last August, the number went down to 52.7 this September.
An economist from Markit put into details the outcome. “A big concern is the divergent trends within the economy, with service providers struggling to eke out any meaningful growth. The PMI points to the weakest rise in business activity since the summer of 2013. Today's survey data are a clear indication that German economic growth has slowed in the third quarter,” he explained.
Here’s the PMI and GDP data of the Eurozone as provided by Markit on its Twitter account.
“By nation, output growth eased to a 16-month low in Germany, mainly reflecting a sharp slowdown in the service sector. France, meanwhile, registered its fastest rate of economic expansion since June 2015, and outperformed Germany for the first time in over four years. Growth at French service providers hit a 15-month high in September, more than offsetting a further stagnation of manufacturing production.”
ECB’s Line of Actions
In line with this, the European Central Bank is expected to take necessary actions to somehow find a stimulus which can revive the economy. Apart from its asset purchase program, further policy support could be provided by the bank.
A few days ago, the central bank of the Eurozone expressed its new effort to redouble economic reform as the government fails to act accordingly. The ECB created a specific task force which will identify the needed reforms, filling in the supposedly relative actions of the authorities. According to the people knowledgeable about the matter, it will be named “Task Force on Economic Reforms.” ECB President Mario Draghi has been firm on his call of support from the government.
Although the concern of the bank seemed late already, market experts still commend the current action of the ECB. Christian Odendahl, chief economist of the London-based Center for European Reform, said “The ECB has no particular expertise in structural reforms, but it can certainly contribute to the debate as economic growth and the supply side of the economy matter for achieving its mandate. It should place emphasis on what kind of macro-economic impact reforms may have -- that’s what it can do best.”
Looking in-depth of the situation, failure to meet economic recovery would be a hindrance for the ECB to push through a rate increase. And in times of low and or even negative rates, currency depreciation is highly possible. It happened that the greenback was still down due to the current decision of the Federal Reserve to maintain the negative rates and the renewed monetary policy framework of the Bank of Japan. Thus, a basket of currencies including the euro found a way up.