Euro in Position to Post Big Weekly Drop on Weak Euro Zone PMI Data, Brexit Issues

According to a series of reports released early Friday, business growth in the Euro Zone slowed much faster than expected in November. The Euro was also pressured after European Union negotiators from the 27 states remaining after Brexit were unable to agree on Gibraltar during talks on Friday, Reuters reported, citing diplomatic sources.
James Hyerczyk
EUR/USD
EUR/USD

The Euro is taking a hit on Friday, driven lower by weak Euro Zone economic data and dampened hopes for a Brexit deal. Worries about the lingering tensions between Rome and Brussels over Italy’s budget negotiations are also weighing on the Euro. The single-currency is currently in a position to post its biggest weekly drop in a month.

According to a series of reports released early Friday, business growth in the Euro Zone slowed much faster than expected in November.

French Flash Manufacturing PMI came in at 50.7, missing the 51.3 forecast. German Flash Manufacturing PMI was 51.6, below the 52.3 estimate. German Flash Services PMI was 53.3 versus a 54.6 forecast.

Euro Zone Flash Manufacturing PMI came in at 51.5. The forecast was 52.0. Euro Zone Services PMI was 53.1 versus a 53.6 forecast.

Traders said the disappointing numbers were hastened by an ongoing U.S.-led trade dispute and will likely be of concern to the European Central Bank which is expected to begin limiting its 2.6 billion Euro asset purchase program in December.

On Thursday, the ECB released the accounts of its October 24-25 monetary policy meeting in which policymakers stressed the need to reaffirm plans to dial back monetary stimulus even as some saw growing risks to the economy. At that time, the policymakers took the view that the picture was still one of widespread economic growth and accelerating inflation. Today’s PMI data may have blown up that argument.

Doubts are being raised about the strength of the Euro Zone economy as problems begin to pile up. The ECB may believe that the issues are concentrated in small areas of the economy, but if activity doesn’t begin picking up early next year, policymakers makers may have to pull in the reins a bit on its plans to tighten the economy. Furthermore, the ECB might be forced to continue its expansionary monetary policy.

Brexit Woes Continue

The Euro was also pressured after European Union negotiators from the 27 states remaining after Brexit were unable to agree on Gibraltar during talks on Friday, Reuters reported, citing diplomatic sources.

Spain reportedly objected to portions of the text at the last minute, meaning little time was left for an agreement to be made. The Spanish government spokesman said any decisions concerning the future status of Gibraltar in the draft withdrawal treaty must be approved by Spain.

The news comes hours after Spanish President Pedro Sanchez tweeted, “After my conversation with Theresa May, our positions remain far away. My Government will always defend the interests of Spain. If there are no changes, we will veto Brexit.”

Spain does not have the power to veto Brexit, but the withdrawal treaty cannot be finalized without being signed-off by the remaining 27 member states of the EU.

This news dampened the positive results from Thursday which resulted in a stronger Euro. At that time, Britain and the European Commission agreed on a draft text outlining how their trading relationship will work once Britain has left the European Union.

Friday’s price action suggests investors aren’t very confident that EU leaders will ratify the agreement at a summit on Sunday.

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