Score one for the crowd who thinks that Mario Draghi is going to have a difficult time keeping a lid on euro strength.
You’ll recall that there’s considerable debate about whether the ECB chief will use his Jackson Hole speech as an opportunity to try and jawbone the euro lower after the latest ECB minutes flagged “FX overshoot” as a risk factor that’s on policymakers’ radar screens.
To be sure, the single currency has calmed down a bit this month after extending YTD gains in June and July as a combination of Draghi’s Sintra “hiccup” and reports of his upcoming Jackson Hole speech fueled rampant bullishness.
But a brief respite notwithstanding, there’s a palpable sense of concern about whether the fraught political backdrop in the US combined with the improving outlook in Europe will conspire to push the euro higher still, undercutting the push to stoke a sustained uptick in inflation and putting pressure on European equities (notably the DAX).
Well sure enough, we got this earlier today:
- Eurozone Aug. Flash Manufacturing PMI 57.4; Est. 56.3
So that’s notable beat. Here’s Andrew Harker, associate director at IHS Markit:
This is another positive set of numbers for the euro area, which continues to enjoy its best growth spell for a number of years. A stronger intake of factory orders bodes well for the labor market as firms will likely look to hire extra staff to deal with outstanding work.
That came shortly after Draghi gave a speech in in Lindau, Germany at which he did not mention FX strength. And it also followed a stronger-than-expected PMI print out of Germany:
- Germany Aug. Flash Manufacturing PMI 59.4; Est 57.6
“A solid German PMI print followed the release of the European Central Bank president’s speech at the Lindau Nobel Laureate Meeting in Germany, which centered mostly on academic observations and didn’t address any policy change,” Bloomberg recounts, adding that “Draghi stayed clear of any reference to the euro, providing leeway to bulls to add to their exposure.”
This was the combined effect:
Throw in renewed concern about the fiscal outlook in the U.S. which darkened after Trump’s Tuesday night bombast just hours after things were looking up, and you’ve got a recipe for further gains heading into the back half of the week.
