Eurozone edges out of deflation for first time in four months

Enrique Díaz-Álvarez01/May/2015Currency Updates


Sterling finished trading lower against both its major peers on Thursday, down by 0.6% versus the Dollar and 1.3% against the single currency.

There was no major data out in the UK yesterday, meaning all attention turned to the General Election next Thursday. David Cameron’s Conservative party took a surprising five point lead over Labour in an Ipsos-MORI survey yesterday. While the two major parties have been neck-and-neck throughout most the year so far, seven of the ten largest polls now put the Conservative party ahead. This year’s election is one of the closest since the 1970’s, with the result increasingly likely to yield a hung parliament, despite the Tories apparent lead in the polls. However, currency markets still appear to be taking the political uncertainty in its stride.

A number of second-tier announcements today, including manufacturing growth for April from Markit, will likely cause moderate volatility in Sterling.


The Euro continued its impressive performance yesterday, ending trading 0.7% higher on the Greenback.

The Eurozone barely escaped deflation in April, ending four months of negative price growth after consumer prices remained unchanged from levels a year-ago. The consumer price index for the Euro-area was flat on an annualised basis following a -0.1% decrease in March. This comes as energy prices continue to stabilise, and will be welcome news to the ECB, which last month launched its long awaiting quantitative easing program. Core prices, which strip out volatile priced products such as energy, remained unchanged at 0.6%. Prices now look on track to become positive in the second half of 2015. At its Economic Bulletin, released yesterday morning, the European Central Bank claimed long term inflation expectations have recovered, with policymakers more confident of a return to the 2% target in the medium term.

Earlier, Germany’s jobless rate remained unmoved at a record low 6.4% last month after the number of those unemployed decreased by 8,000. Eurozone unemployment was unchanged at 11.3%. Disappointingly, however, retail sales in Europe’s largest economy posted its biggest monthly drop since the end of 2013, down by 2.3% in March. Elsewhere, the saga in Greece continued, with Eurogroup President Jeroen Dijsselbloem warning of a Greek exit, claiming Eurozone countries were prepared for such an event.

With markets closed for Labour Day in much of Europe, today looks set to be a quiet day in the Eurozone economy.


The Dollar fell again on Thursday, having taken a beating following weak growth figures. The US Dollar index declined by 0.3%, despite encouraging labour data.

Initial jobless claims for last week surprised most expectations on Thursday, undershooting even the lowest of forecasts and tumbling to an impressive fifteen year low. The number of Americans filing unemployment benefits fell by 34,000 to a seasonally adjusted 262,000 for the week ending 25th April. This marked an eighth straight week below 300,000 claims for the week, with the more representative four week moving average declining by 1,250 to 283,750.

Equally as encouraging for the strength of the US economy, the Labor Department’s Employment Cost Index, a broad measure of labour costs, advanced by 0.7% in the first three months of the year, the largest increase since the third quarter of last year. This boosted labour costs for the past twelve months to 2.6%, although still below the 3% threshold that is required to bring inflation closer towards its 2% target. In a busy day of data releases, personal spending picked up in March, rising by 0.4% on a month previous. This was in spite of household income remaining flat.

Absent of the customary first Friday of the month nonfarm payroll data, which will take place next week, the focus in the US economy will be on the ISM manufacturing PMI for April at 3pm London time.

Rest of the world

Russia lowered its benchmark interest rate by 125 basis points to 12.5%, a larger cut than expected, in a bid to boost the economy’s lagging inflation.


Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.