EUR/USD Sluggish despite Greek Bailout Deal Breakthrough

May 2, 2017 - Written by Ben Hughes

STORY LINK EUR/USD Sluggish despite Greek Bailout Deal Breakthrough

The Euro to US Dollar exchange rate is stuck around opening levels today, despite positive data and developments from the Eurozone.

The finalised Markit manufacturing PMIs have confirmed that the economic recovery in the Eurozone continued to strengthen in April, with growth in factory activity accelerating to a six-year high.

Apart from the German PMI, which fell to a two-month low, and the Netherlands index, which remained unchanged, the PMIs released for individual member states all increased on the month.

While Greece remains in contraction, the France manufacturing index was confirmed to have reached a 72-month high and the Austrian and Italian indices both hit 73-month highs.

According to IHS Markit Chief Business Economist Chris Williamson;

‘Companies are benefitting from the historically weak Euro, improved growth in key export markets, rising domestic demand and ongoing central bank stimulus including record-low interest rates.’

Also positive is the news that, after 12 hours of negotiations, the Greek government has finally reached a deal with its creditors regarding the country’s bailout programme.

The next tranche of rescue funding had been held up by the inability to conclude a second review into the bailout, with both sides previously refusing to give ground on the issue of what level of budget surplus the Greek government should be required to maintain.

In what has been described as a ‘painful compromise’, Athens has agreed to implement additional reforms to its energy sector and labour market, as well as raise taxes and cut pensions further.

The new austerity measures are unlikely to be popular back home, but they do open the door to the next instalment of the €86 billion bailout package agreed upon in 2015.

Greece desperately needs the funds, as it is required to make around €7.5 billion worth of repayments to its creditors in June.

Meanwhile, the US Dollar is being kept soft by the approach of tomorrow’s monetary policy decisions from the Federal Open Market Committee (FOMC).

Markets see a less-than 5% chance that borrowing costs will be raised in the meeting, but have put odds of over 70% on monetary tightening in the June meeting.

Investors will therefore be looking for clues regarding how hawkish policymakers are feeling about the outlook for the US economy.

Should policymakers come across as dovish, the odds of a rate hike will drop and the US Dollar is likely to weaken.

There are also high-impact developments on the Eurozone data calendar, including German unemployment and employment change figures and Eurozone GDP figures.

At the time of writing the EUR/USD exchange rate was trading around 1.0909, while the USD/EUR exchange rate was trading around 0.9166.

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TAGS: Euro Forecasts