The euro climbed to a two-week high against the US dollar in the early hours of Friday, boosted by the positive findings of a survey of German economic sentiment.
By Peter Martin
Friday, April 24, 2015
However, the combined currency pared much of those gains as attention turned to the eurogroup meeting in Riga, Latvia today in which eurozone finance ministers voiced their displeasure at Greece’s failure to meet a list of reforms.
The closely-watched Business Climate Index, released for April today by the Ifo Institute, showed rising economic sentiment in Germany, the largest economy in the eurozone. The Business Climate Index increased to a better-than-expected level of 108.6 in April from 107.9 in March, reaching its highest level since early last summer. Like the consumer-focussed GfK survey published yesterday, the findings of the survey show that businesses viewed the current conditions of the German economy more favourably than future expectations: the current conditions component of the index jumped from 112.1 to 113.9, while expectations showed a small decline from 103.9 to 103.5. The headline advance in the index suggests an upbeat beginning to the second quarter for Germany though and, by extension, the eurozone as a whole.
EUR/USD rose as much as 0.6% on the day earlier in the session, but by 10.00 ET had eased to +0.16% at a level of 1.0840. Eurogroup ministers met today in Latvia and rather than any agreement being struck to help Greece with its liquidity problems, there were numerous reports that Greek finance minister Yanis Varoufikas came under fire for his lack of progress in achieving economic reforms and for trying to circumvent eurozone procedures by appealing directly to German Chancellor Angela Merkel yesterday.
Jeroen Dijsselbloem, the Eurogroup President, told reporters that the meeting ‘was a very critical discussion’, while Bloomberg reported an anonymous source as saying euro finance chiefs had branded Mr Varoufikas as ‘a time-waster, a gambler and an amateur’.
Mr Varoufikas said in a subsequent press conference that he is still confident of a deal, saying agreement with the country’s lenders will be difficult but would happen —and quickly —because it is ‘the only option we have’.
On the domestic front, the latest hard data on the manufacturing sector suggests sluggishness outside of transportation. Durable goods orders jumped a better-than-expected 4.0% in March, following a 1.4% decline in February, but this headline advance was skewed by a 13.5% surge in the volatile transportation component and when we dig further into the data, things start to look a little discouraging.
Orders were down for metals (primary and fabricated), machinery and electrical equipment. Orders for non-defense capital goods excluding aircraft, which is often interpreted as a good guide of corporate expenditure on new equipment, fell 0.5% (versus expectations for a 0.3% gain). We have been hearing from corporate reports this earnings season that big multinationals are being hurt by the strength of the US dollar, and today’s report would seem to suggest that the continued strength of the dollar, along with the softness of the global economy, is causing businesses to cut back on investment. This reinforces the already existing assessment that the first quarter was weak and adds to the view that the Fed will have to wait before hiking rates. Consequently, the dollar has weakened against its major peers today: GBP/USD rose 0.64% to 1.5151 in early trading, while USD/JPY fell 0.42% to 119.08.
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