EUR to remain supported by data and ECB expectations
A continued improvement in Eurozone economic news is likely to underpin the euro. Today’s raft of european data will include Germany’s unemployment report where our economists expect unemployment to fall by 10k in August. However German inflation is to slow back to its May levels in August (we expect a similar dynamic from the eurozone flash CPI estimate on Friday). Our assessment is that the EUR should remain relatively resilient for now through the current period of market volatility. On the policy front, a more optimistic tone in the ECB’s new forecasts should offer a boost next week. Today’s speeches by Governing Council members Nowotny and Mersch will be worth watching in this respect. We point out that through the current rally in EUR crosses, FX investors are only modestly long EUR (with score of +16 on BNP Paribas FX positioning analysis). Meanwhile, GBP benefited from a relatively restrained set of comments by the BoE Governor Carney who refrained from aggressively talking down rates or GBP on Wednesday. The UK economy remains a relative laggard in the post-crisis recovery and the BoE should still be more dovish than the ECB and the Fed over the medium-term, leading to GBP underperformance.
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BNP Paribas