As the year progresses, the Euro (EUR) stands out as the second best performing G10 currency, defying expectations amidst Germany’s economic challenges. Rabobank’s Senior FX Strategist, Jane Foley, highlights the discrepancy, noting the risk of Germany slipping into a technical recession in Q3.
EUR/USD Value on the Rise
Despite concerns, models suggest that the EUR may be undervalued against the USD at current levels. The Eurozone’s real effective exchange rate sits comfortably above its post-pandemic low and within a range established since the currency’s inception.
The Euro’s value did not hinder the ECB’s rate cut in June. However, if the EUR/USD continues to climb amid easing inflation in the Eurozone, the ECB may consider further rate cuts. A stronger EUR could prompt expectations of accelerated ECB actions, curbing the EUR/USD value. As a result, we anticipate limited movement above 1.12, with potential dips to 1.10 if US economic data exceeds expectations.
Analysis Breakdown:
Despite Germany’s economic struggles, the Euro remains resilient and is performing well against the USD. If the Euro continues to strengthen, the ECB may cut rates, impacting the EUR/USD value. This could lead to limited upward movement in the coming months, with possible dips if US economic data surprises positively. Stay informed to navigate potential financial impacts.