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Euro Shrugs Off Strong Growth in Germany, Heads for Two-Month Slump

Forex Oct 30, 2020 03:02PM ET
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By Yasin Ebrahim

Investing.com - The euro fell sharply against the dollar Friday and is on course for a second straight month of declines for the first time since February, as investors fear strong quarterly economic growth in Germany will prove transitory as the spread of the virus gathers pace.

EUR/USD fell 0.25% to $1.1646.

German GDP rose 8.2% in the third quarter, topping economist forecast for a rise of 7.3%, led by a rise in consumer spending as well as investment in machinery and exports.

Looking ahead, however, Europe's growth engine is unlikely to see a repeat in the fourth quarter as the second wave of the virus has forced the country into another lockdown starting Monday.

"[A]ccording to our estimates, the state-ordered closure of restaurants, pubs, hotels, theaters, cinemas etc. as well as stricter regulations for retailers will cause GDP to fall by 1% in the fourth quarter," said Commerzbank (DE:CBKG).

"We have assumed that the lockdown will end at the end of November …  but since new infections usually react to a lockdown with a delay and the government wants to see progress in this area, the restrictions could also affect December," it added.

Infection in Germany have topped 500,000 after an increase of 19,409 in the 24 hours through Friday morning.

As well as an expected dip in German GDP, expectations that the European Central Bank will mount a massive stimulus-response in December will also ensure any strength in the euro is fleeting.

“ECB President Christine Lagarde sent a crystal-clear message that: further stimulus will be announced in December, and there will be a package of measures,” Marco Valli, head of macro research at UniCredit, said in a note, according to CNBC.

Euro Shrugs Off Strong Growth in Germany, Heads for Two-Month Slump
 

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Alan Rice
Alan Rice Oct 31, 2020 1:41PM ET
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