Commerzbank’s Volkmar Baur notes that EUR/USD has broken back above 1.15 for the first time since mid-June as Eurozone Gross Domestic Product (GDP) outpaced United States (US) growth in annualised terms. He highlights a very low US savings rate as a potential drag on future US GDP and sees recent inflation data making it easier for the European Central Bank (ECB) to raise rates in September. Baur cautions that part of the latest EUR/USD move may reverse if BoJ-related flows fade.

Euro benefits from relative growth

"So, as of yesterday evening, we’re back above 1.15 - for the first time since June 17. And there was certainly no shortage of data yesterday to justify this jump: Looking at the details, US GDP growth was quite robust. At the end of the day, however, the 1.5% increase was lower than the consensus had expected."

"And what seems even more decisive with regard to the EUR/USD exchange rate: Eurozone GDP grew by 0.4% in the second quarter compared to the previous quarter, which, according to the US method of calculation (seasonally adjusted and annualized), amounts to 1.6%. That’s faster than in the US."

"In addition to the growth figures, inflation data from individual EU countries and the PCE deflator from the US were also released. And while the annual rate of the PCE deflator declined slightly and the monthly figure was even slightly below expectations, the annual rates in Spain, Belgium, and Germany rose slightly - at least in terms of the overall rate. All in all, then, a picture that should make it somewhat easier for the ECB to raise interest rates again in September."

"It must be noted although, that a major driver of yesterday’s movement in EUR/USD came at around 4 pm from the US dollar side and corresponded with a sudden appreciation of the Japanese yen. According to media reports, this appears to have been an intervention by the Bank of Japan with the assistance of the US Treasury Department"

"Some of yesterday’s EUR/USD movement could therefore be reversed in the coming days. However, that does not change the fact that yesterday was a good day for the euro."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)