(MENAFN– ecpulse) Currency and share markets tumbled in Europe last week and oil prices jumped as fears brew over a possible military action against Syria.
Most currencies ended lower as market sentiment towards commodity-linked currencies was cautious, despite a delay in the imminent Western military strike on Syria. Lawmakers in the United States and Britain, however, gunned the potential military intervention vote down.
Improving sentiment within European countries last week had a minor positive knock-on effect on the euro, in the shadow of record high unemployment and lower inflation rate. Meanwhile, signs the U.S. economy is strengthening have also played a major role in empowering the dollar at the expense of the Europe’s single currency.
The euro area released better-than-expected confidence in August, signaling recovery is gathering momentum—economic confidence in the euro-area jumped to a two-year high in August.
Renewed confidence came after data that showed Spain`s recession eased more than economists’ forecast in the second quarter. But the government struggles to rein in the nation’s budget deficit that is weighing on domestic demand.
Data released last week showed that euro area unemployment remained unchanged at 12.1 percent, indicating weakness in the labor market persists amid high termination rates by employers to lower costs and achieve profitability.
Other data released in the past week from inflation retreated to 1.3 percent from a prior of 1.6 percent, according to CPI flash estimate for the year ended August.
Eurozone’s inflation rate remains under the European Central Bank’s target of 2.0 percent. The ECB which is set to hold its monetary policy meeting this week, has even more room to maneuver and focus on growth.
Investors are expected to keep a tab on key interest rate decision by the central bank on Thursday. Analysts expect the central bank to hold in the bank’s borrowing cost in September amid signs of progress from the economy.
The U.S. has provided fresh optimism last week, as economy expanded unexpectedly in the second quarter at 2.5 percent from 1.7 percent growth; while the country’s labor sector is further recovering with separate report showing initial jobless claims fell in August.
Despite positive signs from Euro area the rally is still built on sand unless sustained by ongoing signs of recovery. Investors will be watching Germany’s elections due med-September, as they are pivotal to the next steps in the euro crisis.
The pound ended last week lower, after the Bank of England governor Mark Carney strongly reaffirmed his commitment to the forward guidance laid out by the central bank earlier in August, highlighting that he has no intention of even considering raising interest rates until the economy breaks the 7% unemployment threshold.
In his first policy speech since taking over the bank, Carney added the central bank may provide more stimuli for Britain`s economy if the country`s economic recovery falters.
Improved U.S. growth and employment data has boosted confidence that the economy is turning a corner, bolstering expectations the Federal Reserve will begin to scale back its asset-buying plan next month, a view that had supported the US dollar in recent weeks.
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