The euro was not the best-performing major
currency over the last week but it was up there, close behind the US
dollar and Swiss franc. It strengthened by a cent against the pound
and by one and three quarter Japanese yen. Against the US dollar it
slipped by an immaterial dozen ticks.
As much as anything, the euro's upward move
was a correction to three weeks of losses as investors took profits
on short positions. They did so despite a string of disappointing economic
data from the euro area. On the pan-Euroland scale industrial production
and investor confidence both and gross domestic product (GDP)
shrank by a provisional -0.1% in the third quarter of the year. National
figures were hardly any better. France and Germany managed GDP growth
of 0.2% in Q3. GDP in Greece shrank by -1.9%, in Portugal by -0.8%
and in Spain by -0.3%. Finland, France, Italy and Greece all reported
falling industrial production (as did Britain).
The good news for the euro was that EU finance
ministers decided to extend the terms of Greece's bailout, giving it
a further two years to reduce its budget deficit. Somewhat less helpfully,
the decision did not please the International Monetary Fund, which stands
as the third horse in the troika with the European Commission and the
European Central Bank. The proposed extension to the bailout would imply
handing a further €30bn - or more - to Greece and the IMF does not
want to contribute. The IMF is happy enough to maintain the fiction
that governments and the ECB cannot lose out on a default by Greece
but it is reluctant to throw any more good money after what could well
turn out to be bad.
If the economic data showed the euro in a
bad light they did no great favours to sterling either. Except for Britain's
trade deficit, which shrank on rising exports and falling imports,
there was disappointment to be found in all the week's data,
Inflation unexpectedly rebounded to 2.7% as
a result of higher prices for food and university tuition. In a way
it was positive for the pound, in that it appeared to lessen the chance
of more asset purchases by the Bank of England, but it was also a re-tightening
of the squeeze on household spending power. Unemployment fell to 7.8%,
its lowest level since May last year, but the number of jobseekers jumped
by 10k and many of the new jobs were part-time.
Retail sales fell by -0.8% in October and were up by only 0.6% on the year.
Retail sales fell by -0.8% in October and were up by only 0.6% on the year.
And the Bank of England governor was on the
hunt for sterling again. Introducing the Bank's quarterly Inflation
Report he was as downbeat as usual about the prospect of economic recovery
and said it was still possible that the Bank might add to its stock
of £375bn government bonds.
So with gloom all around investors were left
to decide which currency they disliked least. The euro or the pound.
They came to the conclusion that the euro had been given too tough a
time over the previous couple of weeks so that is where they went. There
can be no assumption that they will still feel the same way when they
get back to work on Monday.