The Euro edged higher against the US Dollar on Tuesday, despite the Eurozone’s Q4 Gross Domestic Product (GDP) results failing to meet expectations.
The Q4 GDP results held the Euro back from recovering all of its Monday losses, but investors were still generally optimistic on the Eurozone growth outlook.
Growth projections failed to meet expectations in Germany and The Netherlands however.
Germany’s Q4 growth stats came in at 1.2% year-on-year, falling from 1.5% and failing to meet the projected 1.7%. Netherlands GDP failed to improve to 3.1% year-on-year, instead slipping from 2.4% to 2.3%.
While Italy’s year-on-year growth beat expectations of 1% by improving to 1.1%, quarter-on-quarter GDP slipped from 0.3% to 0.2%.
The Eurozone’s projections also came in below expectations due to the slew of underperforming results.
GDP failed to improve to 1.8% year-on-year, staying at 1.7%. The quarter-on-quarter result only gained from 0.3% to 0.4%, disappointing traders hoping for an improvement to 0.5%.
However, analysts remained optimistic towards the Eurozone despite the unexpectedly slow growth in Q4 2016. Commerzbank analysts Joerg Kraemer stated the following about Germany’s Q4 growth;
‘The fourth quarter was not as strong as most economists had expected, but sentiment surveys rose sharply in the past months and orders are also pointing upward,
Therefore growth could slightly pick up in the first quarter of 2017.’
As a result, traders are also relatively optimistic that the Eurozone’s economy will continue to gradually improve and see better fundamentals in 2017.
Uncertainty in the US is comparatively high. While markets remain cautiously optimistic that US President Trump will introduce new fiscal policy and the Federal Reserve will hike US interest rates this year, Trump has been controversially unpredictable during his first month in office.
The US Dollar has therefore weakened from its best levels since January.
If US uncertainty persists and the Eurozone continues to grow at a steady and sure pace, the Euro to US Dollar exchange rate will likely see a mid to long-term recovery.
The Euro certainly has its own share of long-term risks however. Concerns of rising populism and nationalism in the Eurozone have been increasing in recent weeks.
Many leadership elections will be held throughout the Eurozone this year, including in France, The Netherlands and Germany.
The growing influence of French nationalist Presidential candidate Marine Le Pen has been especially concerning to Euro traders in recent months.
Le Pen has stated on multiple occasions that she desires to withdraw France from the Eurozone and see the return of France’s old currency, the French franc.
Some analysts have perceived a key economy withdrawing from the Eurozone as being the single biggest threat to the shared currency’s future.
As a result, even if Eurozone growth continues to see solid improvement the Euro could suffer in the long-term if Eurozone political concerns worsen or if populist nationalist politicians come into power.
At the time of writing, the Euro to US Dollar exchange rate trended in the region of 1.06, while the US Dollar to Euro exchange rate traded at around 0.94.
Comments are closed.