Chinese growth forecasts affect currencies

EUR/USD is now weighing up the implications of reinvigorated Chinese growth.

The overnight news from the Chinese government, confirming that over the next five months it would oversee an increase in the country’s growth to bring it back above the 7% level, has had a mixed reception. The European equity markets have bounced strongly on expectations that exports to the Asian markets are likely to increase.

The Chinese government has yet to gain the complete trust of the investment community, as to date it has not always been as accurate with its statistics as it could be. Many are more inclined to follow figures compiled by HSBC rather than the government. Having said that, it does seem likely that we will see increased spending in China, as the government may look to bring fresh infrastructure projects to the table or hasten those currently scheduled. These will result in a short-term boost.

The importance to EUR/USD of this external influence is a reflection of how little people believe that the EU is capable of stimulating itself into a more solid financial footing. The more exaggerated moves from the EU equity indices, in comparison to the US equity markets, in reaction to QE comments from the Fed shows how dependent the EU is on external stimulus. Until the picture looks better it is hard to see the euro independently gaining strength.

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