Currency Note

Europe’s ‘big four’ economies boom

By Jonathan Cook May 1st, 2024

The eurozone's 'big four' each beat growth expectations to begin the year.

Tuesday’s logjam of European data brought an impressive set of results, as multiple countries reported higher than expected GDP.

Germany, France, Spain and Italy — known as the bloc’s ‘big four’ economies — all surprised to the upside on economic growth, which in turn helped harmonised eurozone GDP to grow by 0.3% in the 1st quarter of 2024, far above forecasts of 0.1% growth.

French inflation was the sole caveat, coming in lower than the month before in April, but still slightly higher than the expected 2.1%. Perhaps we shouldn’t nitpick; this month’s inflation also marked the lowest reading since September 2021.

Part of the eurozone’s growth to start this year has come from expectations of interest rate cuts. Markets will be watching for signs that inflation has picked up as we head into the summer, but for now, the euro is battling strong headwinds.

The US dollar rallied yesterday afternoon as US labour costs increased by more than expected. Civilian employment costs rose by 1.2% in the three months to March, leading to fears that the Federal Reserve would be forced to delay their first batch of interest rate cuts.

GBP/EUR fell back only slightly from its recent highs on Tuesday. The pound lost around 0.3% to the US dollar, which improved by a similar margin against the euro.

What today lacks in data volume it certainly makes up for in significance. The US will be firmly in the spotlight throughout Wednesday, first with manufacturing PMI and JOLTs job openings before the Federal Reserve steal the limelight.

UK mortgage approvals reached their highest level in 18 months in March. Net mortgage approvals rose to 61,300 last month, as consumers once again demonstrated their resilience and willingness (however grudging it may be) to snap houses up at higher costs.

US consumer confidence dipped to its lowest since July 2022 in April. Consumers are becoming increasingly unsure about the country’s economic trajectory, the Conference Board’s study found.

The price of oil futures and gold both fell yesterday afternoon, as the US dollar surged and markets looked to riskier assets. Hopes of a potential breakthrough in the Middle East helped to boost sentiment, but that situation remains finely poised.

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GBP: Spectator sport

The pound has been largely a spectator this week, as it looks to build on its comeback against the euro while clawing back some value against the US dollar.

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EUR: A welcome boost

Europe’s four biggest economies helped drag GDP growth firmly above expectations in the first quarter of the year. That’s a huge boost for policymakers and politicians alike, who will now hope inflation shows its lack of buoyancy.

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USD: Inflation gives consumers pause

It’s not hard to see why American consumers are feeling uneasy. Every week, employment and wage data remains strong while the possibility of rate cuts recedes. They might find comfort in their economy’s remarkable resilience, but that will mean little to those making mortgage and credit card payments.

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