Europe As We Know It?

The euro was trading at 1.1777 this morning against the dollar, down 0.13 percent from the previous session. The bloc’s currency has been facing strong pressure in the past few weeks. But, is it all due to the dollar strengthening? What else is on the play?

Easing geopolitical tension in the Korean peninsula, prospects of a trade agreement between the United States and China and expectations for further monetary policy changes by the Federal Reserve have boosted the greenback to record its best rally in ages.

There is no doubt the dollar is playing a huge role in keeping its European counterpart low. But no, the dollar is not the only driver weighing on Mario Draghi’s autographs.

So… what then? Well, I believe we should divide the matter into two: economy and politics.

Germany - Economy

According to Eurostat, Germany is (by far) the largest economy in the European Union with more than 20 percent of the total share.

In other words, the German economy sets the direction of the entire bloc. I mean… we get it. Germany is a strong nation. But markets care about figures and the latest Gross Domestic Product (GDP) was not as good as expected.

Last week, Germany’s first quarter GDP came in at a quarterly rate of 0.3 percent, falling short from an estimated 0.4 percent and a previous reading of 0.6 percent. On yearly basis, the GDP also missed expectations at 1.6 percent, compared to an 1.8 percent rate seen.

But that wasn’t the only report weighing on European investors sentiment. The German ZEW Economic Sentiment for May established at 8.2, down from an expected 8.0 reading. Additionally, consumer prices remained unchanged in April.

Italy - Politics

Two words: Giuseppe Conte. A law professor at Florence University with no prior political experience, that has been pushed by 5-Star Movement and League parties to lead their recently established anti-EU coalition government.

Analysts believe Conte is far from ruling the country on his own, and instead he is acting as a mere puppet playing on 5-Star and League best interests.

FortFS