Stronger euro-zone growth offering limited support for the euro - MUFG

Lee Hardman, Currency Analyst at MUFG, suggests that the strengthening economic growth outlook both in the euro-zone and globally is a supportive development for the UK economy in the year ahead.

Key Quotes

“It will help the UK economy to derive more support from the weak pound if external demand is strengthening as well. It is one reason why we are not worried by a potential sharper economic slowdown in the UK even as consumer spending is starting to slow in response to the squeeze on incomes from higher inflation.”

“The release yesterday of the latest PMI surveys provided a further positive signal for the performance of the euro-zone economy. Economic growth appears to have strengthened further at the start of this year and could expand robustly by 0.6% in Q1 according to Markit. It is encouraging that the economic recovery is broadening out as well. However, the developments are unlikely to offer much support for the euro in the near-term as the ECB still remains committed to maintaining aggressive policy easing through this year. Counter intuitively it has increased downward pressure on the EUR/USD rate as strengthening global growth gives the Fed even less reason to hold back on raising rates further in the coming months.”