Euro extends gains above 1.1150 after upbeat Eurozone output data
EUR/USD advanced toward 1.1175 on Monday as third-quarter Eurozone and German growth figures came in stronger than forecast, though a Fitch warning on France's credit outlook and Tuesday's US midterm vote limited further upside.
Eurozone output rose 0.4% quarter-on-quarter in the third quarter, a pace that eased from 0.6% in the prior quarter but still cleared the 0.2% figure economists had penciled in. Germany’s economy added 0.2% over the same period, down from 0.3% previously yet well above the 0.1% consensus estimate.
Elias Haddad, a strategist at Brown Brothers Harriman, noted that expansion in Spain and Germany more than made up for a contraction in France, pointing to underlying strength across the bloc even as price pressures remain high. He added that the narrow gap between European Central Bank (ECB) and US Federal Reserve (Fed) policy paths continues to lend the single currency support.
That backing isn’t unconditional. On Friday, Fitch lowered its outlook on France’s sovereign credit rating from “stable” to “negative,” citing worsening public finances and political uncertainty that threaten to complicate efforts to stabilize debt. Haddad cautioned that France’s budget troubles could still pull EUR/USD toward the 1.1000 mark.
Meanwhile, ECB Governing Council member Joachim Nagel adopted an unusually firm tone, indicating the central bank would move decisively should circumstances require it in order to steer inflation back toward its goal, while flagging that renewed energy-driven price pressures remain a possibility.
Investors are also focused on Tuesday’s US midterm elections, where Democrats are widely expected to capture the House of Representatives even as the fight for Senate control stays too close to call. German retail sales figures and the US ISM Manufacturing PMI, both due later Monday, are also on traders’ radar for fresh direction.
Why it matters: The upside surprise in Eurozone GDP alongside Nagel’s hawkish remarks bolsters the case that the region’s rate backdrop will stay firm, a dynamic that continues to prop up EUR/USD. Still, uncertainty tied to France’s fiscal position and the outcome of the US vote introduces risks that could blunt that support in the short run.
Source: FXStreet