August 2017
The euro rose to its highest level against the US dollar since January 2015, bolstered not only by the strengthening European economy, but also by worries over the impact of Tropical Storm Harvey in the US and intensifying fears over relations between North Korea and the rest of the world. However, the euro’s strength created some concern about the impact on corporate earnings
- Japan’s economy has achieved six consecutive quarters of positive growth
- The RBA maintained its key interest rate at 1.5%
- High levels of household debt could spur the Bank of Korea to tighten monetary policy
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The euro rose to its highest level against the US dollar since January 2015, bolstered not only by the strengthening European economy, but also by worries over the impact of Tropical Storm Harvey in the US and intensifying fears over relations between North Korea and the rest of the world. Investors were unsettled by increasingly aggressive speeches from both North Korea and the US and, in common with other major global markets, European equity markets were flustered by the news that North Korea had fired a ballistic missile over Japan.
“Inflationary pressures in the eurozone picked up during August”
Rising levels of risk aversion spurred investors to focus on “safe-haven” assets. While the price of gold rose to its highest level for eleven months, the Swiss franc surged against the US dollar to levels last seen in the middle of 2015. Over August as a whole, Germany’s Dax Index fell by 0.5%, while France’s benchmark CAC 40 Index declined by 0.2%.
The euro’s strength created some concern about the impact on corporate earnings. Although a strong currency will reduce import costs, it is also likely to dampen export growth. Although European Central Bank (ECB) officials expressed some disquiet over the euro’s appreciation at their July monetary policy meeting , ECB President Mario Draghi did not mention the currency’s strength in his speech at the annual economic symposium at Jackson Hole, Wyoming; instead, he concentrated on the issues of openness and cooperation across global economies and markets.
Inflationary pressures in the eurozone picked up during August, driven up by higher energy costs. The region’s annualised rate of inflation rose to an annualised rate of 1.5%, compared with a rate of 1.3% in July. Although inflation remains below the European Central Bank’s (ECB’s) target rate of 2% , the stronger-than-expected data is likely to intensify pressure on the central bank’s policymakers to tighten its monetary policy.
The eurozone’s economy expanded at an annualised rate of 2.2% during the second quarter. Meanwhile, the region’s rate of unemployment remained steady at 9.1% in July; while unemployment edged down in Germany from 3.8% in June to 3.7%, France’s rate rose from 9.6% to 9.8%.
According to the Investment Association (IA) , UK retail investors continued to favour European equity funds, whose net sales during July were exceeded only by those of Global funds. European excluding UK was the third-best-selling IA sector during the month.
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