The euro advanced against major global currencies during the European trading session on Wednesday following surprising economic growth in Germany’s third quarter. Destatis, the German federal statistics office, reported a preliminary estimate revealing that Germany's GDP grew by 0.2% from the previous quarter. This growth countered economists’ projections, which had forecasted a slight decline of 0.1%. A key driver of this unexpected growth was an uptick in household and government spending, pushing Europe’s largest economy to sidestep a technical recession.
German Economy Avoids Recession
Germany’s third-quarter expansion follows a revised 0.3% contraction in the second quarter. On a year-over-year basis, calendar-adjusted GDP for Germany rose by 0.2%, recovering from a 0.3% decline in the previous quarter. In addition, price-adjusted GDP also recorded a 0.2% annual increase, a slight improvement over the prior quarter’s 0.1% rise.
This growth came as a welcome surprise for investors and economists, who had widely anticipated a technical recession for Germany. The stronger-than-expected numbers not only boosted market sentiment but also helped the euro gain strength against major global currencies, including the U.S. dollar, Swiss franc, British pound, and Japanese yen.
Impact on European Central Bank (ECB) Rate Expectations
The unexpected growth in German GDP has sparked speculation about the ECB’s upcoming decisions. Many market watchers had anticipated that the ECB might introduce a larger-than-usual interest rate cut of 50 basis points in December to counter economic stagnation across the Eurozone. However, Germany’s economic performance has somewhat softened those expectations, as the positive GDP figures may encourage a more conservative approach from the ECB.
Eurozone Growth Beats Forecasts
The Eurozone as a whole also posted encouraging economic data. A preliminary flash estimate from Eurostat reported that the Eurozone’s GDP grew by 0.4% on a quarterly basis, surpassing the expected 0.2% growth rate and marking an acceleration from the previous quarter. Year-on-year, the Eurozone economy grew by 0.9%, improving from the second quarter’s 0.6% growth rate and exceeding economists’ forecast of 0.8%.
This upward trend in the Eurozone's overall economic growth has contributed to the euro’s recent bullish momentum. The latest figures have reassured investors that the Eurozone economy, while grappling with challenges, remains resilient amid mounting geopolitical and economic uncertainties.
Euro Strengthens Against Major Currencies
In response to Germany’s economic growth news, the euro saw notable gains against several key currencies:
Japanese Yen: The euro rose to a three-month high of 166.21 yen, up from an earlier low of 165.59 yen. If this upward trajectory continues, the euro could soon test the next resistance level at 167.00 yen.
British Pound: The euro climbed to a two-day high of 0.8343 pounds, recovering from a prior low of 0.8314. Analysts believe that the next significant resistance level lies at 0.84 pounds.
U.S. Dollar: Against the dollar, the euro advanced to a nine-day high of 1.0859, up from 1.0813. Should the euro maintain its strength, it may soon approach the resistance level of 1.10 against the greenback.
Swiss Franc: Similarly, the euro rose to a nine-day high of 0.9405 francs, compared to an earlier low of 0.9371. The euro is anticipated to test a resistance point at 0.95 against the Swiss franc.
Key Global Events and Their Influence on the Euro
While the euro’s recent gains have been driven by favorable European data, other international factors are expected to impact its future trajectory. Investors remain cautious ahead of next week’s U.S. presidential election and the Federal Reserve’s rate decision. The heightened anticipation around these events has injected some uncertainty into the markets.
Moreover, U.S. economic data expected later in the day, including MBA weekly mortgage approvals, third-quarter GDP data, core price index figures, and pending home sales data, could further influence the euro’s performance against the dollar, depending on the strength of the U.S. economic indicators.
Oil and Gold Prices Add Complexity to the Market
In the commodities market, oil prices traded higher during European hours after experiencing two days of losses. Increased oil prices are typically associated with a strong demand for energy, signaling economic activity. Additionally, gold prices continued their recent climb, with the precious metal reaching new record highs. Gold’s bullish trend indicates that many investors are still seeking safe-haven assets amid the various uncertainties in the global economy.
Eurozone Resilience Amid Global Uncertainty
The euro’s recent rally underscores a broader trend of resilience within the Eurozone despite global economic challenges and persistent geopolitical risks. Germany’s stronger-than-expected GDP performance has reinforced confidence in the Eurozone’s economic prospects, mitigating concerns over a potential recession.
As investors look ahead to the U.S. election, Federal Reserve’s rate decision, and further economic data releases, the euro’s strength will continue to be tested. However, the positive economic indicators within Germany and the broader Eurozone may offer some stability, positioning the euro favorably as it navigates the complex global economic landscape.
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