Eurozone: Resilient data but growth risks weigh on Euro – Rabobank

FXStreet Insights Team FXStreet

Rabobank's Senior FX Strategist Jane Foley notes Eurozone Q2 Gross Domestic Product (GDP) and Purchasing Managers' Index (PMI) data surprised to the upside, suggesting resilience despite higher energy prices and supply disruptions. However, Foley warns that the breakdown of the US–Iran agreement, expectations of further European Central Bank (ECB) tightening, competition from China, and a loosening German labour market pose downside growth risks and could limit Euro (EUR) strength, especially via weaker consumer spending.

Resilient growth faces new headwinds

"Eurozone Q2 GDP growth was stronger than expected at 0.4% q/q, compared with a median expectation of 0.2% q/q."

"Despite higher energy prices and supply disruptions implied by the (near) closure of the Strait of Hormuz, it would appear that the Eurozone economy has weathered the headwinds better than expected."

"The breakdown in this agreement clearly implies downside risks to growth and upside inflation concerns."

"Germany’s adjusted unemployment rate ticked higher in July to 6.4% from 6.3% in June, pushing the overall number of unemployed people over the 3 mln mark on an unadjusted basis."

"The loosening of the labour market has resulted in a considerable slowdown in growth of real compensation of employees which, in RaboResearch’s view, suggests that consumer spending could stagnate for the rest of the year."

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

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