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Weekly Financial Market Review - Comment for the 1st - 5th May

Information supplied by AIB

The Eurozone economy has lagged behind the recoveries in the US and UK for most of this decade, but this is now changing. Growth in the Eurozone last year came in at 1.7%, more or less matching the performance of the US and UK at 1.6% and 1.8%, respectively. Leading indicators of activity suggest that the recovery in the Eurozone is gaining momentum, while growth in the US and UK would appear to be slowing. Eurozone GDP figures due on Wednesday are expected to show that the economy grew by 0.5% in Q1. By contrast, growth slowed in both the US and UK economies, which recorded rises of 0.2% and 0.3% in Q1 GDP, respectively.

In the Eurozone, we get the aforementioned Q1 GDP data. Survey data were strong in the quarter, pointing to a quarterly rise of 0.6-0.7%, though the ‘hard’ data were not as upbeat. Thus, a solid increase of 0.5% is forecast, matching the result from Q4 2016. Meanwhile, the unemployment rate is expected to have continued its steady decline in March, edging down to 9.4%, but this remains high by the standards of other developed economies.

Finally, the focus in the UK will be on April PMI data. The manufacturing and services indices showed some modest improvement in March, while still being consistent with the slower pace of growth in Q1 which was confirmed by last week’s GDP figures (+0.3% versus +0.7% in Q4). They are expected to have weakened in April, suggesting that the UK economy started Q2 on a softer footing.

Exchange Rate Forecasts (Mid-Point of Range)

Current End Q2 2017 End Q3 2017 End Q4 2017
EUR/USD 1.0916 1.08 1.06 1.04
EUR/GBP 0.8443 0.85 0.86 0.87
EUR/JPY 121.65 122 122 122
GBP/USD 1.2926 1.27 1.23 1.20
USD/JPY 111.44 113 115 117

Current Rates Reuters, Forecasts AIB's ERU