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Euro stable as German, Eurozone investor sentiment plummets

H.S. Borji
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Euro stable as German, Eurozone investor sentiment plummets

The euro was little changed against the US dollar on Tuesday, as Eurozone investor sentiment continued to deteriorate this month in the face of an escalating sanctions war between the West and Russia.

The euro-to-dollar exchange rate fluctuated very little on Tuesday, trading between 1.2923 and 1.2967. The pair would subsequently consolidate at 1.2943, advancing just 0.03 percent. The daily chart shows initial support situated at 1.2908. On the upside, initial resistance is likely found at 1.2973.

The euro strengthened against the British pound as the prospect of an independent Scotland continued to weigh on the markets. The latest polls suggest the No campaign has a very narrow lead, although that can change in a hurry, according to analysts monitoring the events.

Meanwhile, British consumer inflation rose faster than forecast in August, the Office for National Statistics reported today. Core consumer prices increased at an annual rate of 1.9 percent, following a 1.8 percent increase the previous month.

The euro-to-pound exchange rate advanced 0.2 percent to 0.7988. The pair faces initial support at 0.7950 and resistance at 0.7990.

In Eurozone data, the Centre for European Economic Research (ZEW) said investor confidence declined sharply, as escalating tensions between the West and Russia and a deteriorating economic climate in Europe weighed on sentiment.

The Eurozone economic sentiment index fell to 14.2 in September from 23.7. Economists forecast a decline to 21.3.

German confidence fell to a 21-month low, ZEW said, as the economic sentiment index declined 1.9 points to 6.9. The current situation index fell 18.9 points to 25.4.

“The downward trend of the ZEW Indicator of Economic Sentiment for Germany has slowed significantly,” said ZEW president professor Clemens Fuest in a statement. “However, the economic climate is still characterized by great uncertainty. The risk of a sanction spiral with Russia continues to exist and economic activity in the Eurozone remains disappointing. Last but not least, it is difficult to assess potential consequences of Scottish independence.”

Earlier this month the United States and its European allies expanded their sanctions war against Russia for its perceived role in destabilizing Ukraine, targeting the country’s banking, energy and defense sectors.

Russian President Vladimir Putin retaliated by slapping restrictions on western companies and individuals. Earlier this summer Russia levied import bans on western food products in response to an initial wave of sanctions from the US and European Union.

The escalating sanctions war has gripped the Eurozone economy, helping push Germany back into contraction. Europe’s star economy contracted 0.2 percent in the second quarter, as the broader euro area stagnated.

Weak Eurozone output prompted further action from the European Central Bank, which earlier this month reduced interest rates to 0.05 percent and announced plans to purchase asset-backed securities worth up to €500 billion.

The ECB is desperately trying to fight off deflation, which continues to pose a threat to the Eurozone’s fragile recovery.

Eurostat will report on Eurozone consumer inflation on Wednesday. The revised estimate is expected to show annual inflation cooled in August to 0.3 percent from 0.4 percent, the lowest level in nearly five years.

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