Euro Drops as New Reforms Are Ready to Deploy in Greece

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During last week, the euro weakened against the dollar with 0.53%, sending the EUR/USD major at 1.1223 and also marking the second straight weekly decline this year. The economic activity went down unexpectedly in the month of April, raising concerns over the health of the Eurozone’s economy, as per preliminary data of Friday. This downbeat data is an indicator that the ECB (European Central Bank) does have space to maneuver further monetary policy easing.

The Markit Flash Composite Output Index for the Eurozone (which is measuring the output of both manufacturing and service sectors in the economy) slipped from the March level of 53.1 to 53.0 in the month of April, under the expected 53.2. There was also a drop in the Flash Service PMI (Purchasing Managers’ Index) to 53.0 from March’s 53.1 and expected 53.2. The preliminary Manufacturing PMI also went down to a seasonally adjusted 51.5 value for April, from March’s final reading of 51.6. Officials expected the index would maintain the trend and rise to 51.8 this month. As the principle dictates, an index above 50.0 indicates an expansion in the industry/economy, whilst a recorded figure fewer than 50.0 indicates contraction.

Regarding this report, the Chief Economist at Markit – Chris Williamson – stated that the economy in the Eurozone is currently in a grey zone, with the economy slowing down to a slugging pace; the PMIs are backing up the small 0.3% rise in GDP (Gross Domestic Product) from the start of the second quarter and are constant with the full-year forecast. Williamson pointed out that the picture is unlikely to change, nor the economy to accelerate, emphasizing that France is the main driver for this major drag in the region.

The ECOFIN meeting from the end of last week (Friday) was all about the international leaders asking Greece for a new set of saving methods which need to be ready to deploy and be issued as legislation in case the country will not reach the agreed fiscal targets in the next period. Once finalized, the contingent measures along with the measures in negotiations and the ones already in place would enable a new portion of loan disbursement for the Government in Athens, which will be another step towards the debt relief. The idea of this set of measures is the result of long discussions between the IMF (International Monetary Fund) representatives and the Eurozone on whether the current reforms in Greece are enough.


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