“Slightly less strong” is the new euphemism for the economic stagflation

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The euro is down on Wednesday, after the Purchasing Managers Index for the services sector in the Eurozone was revised downwards by IHS Markit in July.

The index went from an initial estimate of 60.4 to a definitive 59.8 in July. This was still an increase from 58.3 in June and well above the level of 50 which marks the dividing line between growth and contraction.

Growth was “slightly less strong” than previously estimated, due to concerns about the rapid spread of the coronavirus Delta variant, said Markit economist Chris Williamson. It expects the euro area economy to accelerate in the third quarter thanks to a relaxation of the coronavirus measures.

The euro / dollar stood at 1,1844, compared to 1,1878 on Tuesday. According to technical analysts, the currency fell below a support level of 1,1855.

The euro was 0.1 percent higher than the Swiss franc at 1.0736, but earlier in the day it reached its lowest level since November at 1.0719.

The recent appreciation of the Swiss franc against the euro is due to the attitude of the European Central Bank to keep monetary policy broad, according to Commerzbank.

“After the last ECB meeting, the market is leaning more towards the assumption that monetary policy in the euro area will remain Broad for a long time to come, even after the coronavirus pandemic. This reduces the exchange rate of the euro against the Swiss franc”, says Thu Lan Nguyen of the German bank.

This is not reflected in the euro/dollar, because the Federal Reserve’s stance also leaves room for an extended policy of expansion. If the pandemic subsides, the Swiss franc, which is considered a safe haven, may fall, but that decline may be limited, according to Nguyen.

About the author

Nicholas de Kramer

Nicholas de Krammer, а self-taught economic analytic with heave mathematical background. Math behind the economics (and economics behind math) is the strong side of the author. Contact him at [email protected]

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