Euro to US Dollar Strengthens on improved economic sentiment

May 28, 2015 - Written by James Fuller

STORY LINK Euro to US Dollar Strengthens on improved economic sentiment

Euro to US Dollar Strengthens on improved economic sentiment

The Euro advanced by more than 0.35% against the US Dollar after data out of the Eurozone showed that businesses in the single currency bloc grew more optimistic in May. The report also showed that the threat of deflation in the region is easing, good news for the European Central Bank and its quantitative easing programme.

According to the European Commission, business confidence rose in spite of the worries surrounding the currency Greek debt crisis. Investment in the region could rise even as the ongoing stalemate between Athens and its international creditors has raised new concerns over the viability of the single currency. The data showed that sentiment improved amongst retailers, construction companies, service providers and manufacturers.

Economic sentiment held steady at 103.8 in May, beating economist expectations for a slight decline to 103.5. Consumer confidence dipped as forecast from -4.6 to -5.5 and business confidence fell more than expected from 0.32 to 0.28. Industrial sentiment matched forecasts for a -3.0 figure.

The fact that sentiment has remained relatively stable despite the Greek crisis suggests that a broad recovery in the euro zone is underway. Confidence in industry rose slightly, services showed solid gains and shop owners were more positive about current and future business.

The European Commission also said that its forecast for consumer price inflation improved for a fourth consecutive month in May. The improvement was a positive for the European Central Bank which launched its quantitative easing programme in March.
Also supporting the Euro was the optimism by the Greek government that a deal will be reached between Athens and its international creditors. News broke that Athens is hoping for a deal on economic reform measures to be reached by Sunday. Bizarrely the market appears to trust the word of the Greeks instead of the creditors who have expressed surprise at the Greek government’s optimism. German Finance Minister Wolfgang Schauble said on Wednesday that the talks were not progressing much at all.

‘We are all in the process of working towards a solution for Greece and I would not say that we already have reached substantial results. Things have moved, but there is still a lot of work to do,’ said International Monetary Fund chief Christine Lagarde.

The US Dollar could regain ground later in the session if upcoming US jobless claims, and pending home sales data come in positively.

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