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EUR USD Exchange Rate Firms after Forecast-Beating German GDP Growth

November 14, 2017 - Written by Frank Davies

On Monday’s trading session, the Euro saw a minor rise against the US Dollar.

The pairing opened trading in the region of 1.1651 in the morning, later closing slightly higher at 1.1663 by the end of the day.

EUR USD Rate Bolstered by Soaring German GDP

The Euro has been strongly supported by German data today, which has shown considerable growth in GDP levels in the third quarter.

The Q3 GDP flash showed a rise from 0.6% to 0.8% on the quarter and an increase from 2.3% to 2.8% on the year.

Both results beat forecasts, with the year-on-year figure showing a rise instead of an expected slowdown.

German inflation hasn’t been quite so positive, showing no monthly movement in October and an annual slowdown during the month.

Nevertheless, this is still extremely positive news for the Eurozone as to some extent, Germany’s economic health is reflective of the whole currency bloc economy.

Looking at the situation with optimism has been Kit Juckes of Société Générale;

‘Europe’s economic heart is pumping away and a 0.8% Q3 quarter-on-quarter GDP gain in Germany threatens to nudge the Eurozone growth rate up too.

It’s a reminder of the changing of the guard as the US economic cycle ages’.

Another economist responding positively has been Carsten Brzeski of ING Bank;

‘Never tired of good news? Then have a look at the latest German GDP data.

The economy continues its golden cycle and staged yet another strong growth performance in the third quarter.

Growth was driven by public consumption, investment and net exports. Only the construction sector took a longer vacation break.

Even if the economy would stagnate in the final quarter of the year, GDP growth for the entire year would still come in at 2.4%; the highest reading since 2011’.

Other strong GDP readings today have included Italian results, which have shown forecast-beating GDP growth in the third quarter.

US Dollar Loses Ground despite Fed Support for December Rate Hike

The US Dollar has slipped against the Euro today, but has otherwise made a number of moderate gains against its currency peers.

This overall strength comes from recent comments from Federal Reserve official Patrick Harker.

Harker has voiced his support for a US interest rate hike in December, which would be the third of 2017.

A limiting factor in the US today has been news that Donald Trump’s tax reform plans may still end up being watered down or rejected.

While the Senate and House of Representatives are both currently looking at the reform plans on the table, Trump has suggested some alarming amendments.

Namely, these have included the possible addition of a provision to repeal part of the ‘Obamacare’ healthcare act.

The Republicans suffered a high-profile humiliation earlier in the year when they failed to repeal and replace Obamacare, so this raises the possibility of another congressional defeat.

Are Further Euro Gains ahead on Eurozone GDP Stats?

The Euro may be on track to rise further against the US Dollar in the near-future, when Eurozone-wide GDP data is announced.

Estimates are for a rise in year-on-year Eurozone GDP for the third quarter, along with a minor quarterly slowdown.

The annual figure is generally the more impactful of the two, which means that the Euro could be further strengthened by such a result.

Additionally, Germany’s ZEW economic sentiment index will be released shortly. In another potential source of Euro gains, forecasts are for a rise in the sentiment index from 17.6 points to 20.

The day’s main US news will consist of a speech from Federal Reserve policymaker James Bullard.

Bullard will be speaking in the afternoon and could echo Kaplan in supporting a December interest rate hike.

If he does suggest that a December rate hike is highly likely, the US Dollar could rally against the Euro.

The US Dollar is unlikely to tumble if Bullard doesn’t mention rate hikes, however, as economists are already heavily pricing in a December interest rate increase.
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