Eurozone: Recovery proceeding at a more measured pace – Wells Fargo

“As the Eurozone economy shows a further perceptible firming in growth in the months ahead, we expect the European Central Bank to eventually follow suit by announcing a slower pace of its bond purchases from Q4 2021 at its September meeting”, says analysts at Well Fargo. They point out the UK's faster economic rebound and the earlier move to less monetary policy accommodation suggests greater upside risk to their medium-term GBP/USD target of 1.4900 than their EUR/USD target of 1.28. In the short-term they anticipate the pound will perform more strongly versus the greenback, “although the euro may catch up a bit over the longer-term as the economic recovery in the Eurozone gains further momentum.”

Key Quotes: 

“The Eurozone economy is also recovering, but the rebound in activity appears to be more measured. In part this reflects a slower start by many Eurozone governments in vaccinating their populations against COVID. This resulted in lockdowns still being in place in April in some Eurozone countries, and other restrictions were in some cases in place later.”

“The level of Eurozone retail sales in April was only 0.3% above the Q1 average, a stark contrast to the much larger gain reported for the United Kingdom. We also observe that the level of Eurozone Q1 GDP was still 5.1% below its pre-pandemic peak from Q4 2019.”

“While things have improved since for the Eurozone, with the upswing gaining some momentum, this theme of Eurozone recovery but at a slower pace is also reflected in confidence surveys. In particular, the U.K. services PMI rose to 62.9, a multi-decade high. The Eurozone May services PMI rose but not by nearly as much to 55.2, the highest level since June 2018.”

“Diverging paths of monetary policy have resulted in slightly diverging outlooks for the British pound and the euro. As monetary policy turns less accommodative in the U.K., we expect the pound to rally and risks around our forecast are tilted to the upside. As far as the euro, while we are forecasting a stronger currency, the pace of appreciation is likely to be more gradual as the ECB may be more cautious about paring back monetary policy accommodation in the near future.”

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Feed news

Latest Forex News

Latest Forex News

Editors’ Picks

EUR/USD pressured amid downbeat data, covid concerns

EUR/USD is trading well below 1.18 and down on the day. Markit's US Services PMI missed estimates with 59.8, souring sentiment. Worries about covid provide some support to the safe-haven dollar. The ECB's dovish decision pressures the euro.


GBP/USD hovers around 1.3750 amid after mixed UK data

GBP/USD is holding above 1.3750, clinging to this level after UK Retail Sales beat estimates but Markit's PMIs missed on both sides of the pond. Covid headlines are eyed.


XAU/USD eyes a sustained move below key $1799 support

Gold price is trading on the wrong footing this Friday, eyeing the first weekly loss in five weeks, as the US dollar remains at the highest levels in three months.

Gold News

Cardano might pull back to $1.11 before heading higher

Cardano price pierced the July 18 swing high at $1.21, indicating a resurgence of buyers. Although ADA might try to slice through $1.25, a retracement will likely evolve before tagging $1.37.

Read more

US Markit PMIs Preview: Pre-weekend dollar boost? Downbeat figures could exacerbate risk-off mood

Two steps down, one step up – that has been the playbook for risk-averse markets. What happens when traders have little time to act ahead of the weekend and the last word belongs to a downbeat figure? 

Read more