EUR/USD lower despite GDP growth in France and Germany

[MongiIG]

The third quarter growth data in Germany has surprised traders with expansion. Economists had forecast a contraction of 0.2%, but there was an expansion of 0.3%. France came in as expected.

 Jeremy Naylor | Writer, London | Publication date: Friday 28 October 2022

German economy expands

Despite talks of looming recession in the German economy, none of it, as we saw the first reading of third quarter (Q3) gross domestic product (GDP) coming through with an expansion, not the contraction that we have been looking for.

Let's take a look at the numbers as they hit the wires this morning. Third quarter figures came in at 0.3%, a positive number. We'd been looking for a contraction of 0.2%.

Now that would have been the first month of what was expected to have been two continuous quarters of this reading. Year-on-year (YoY) we came through far stronger than expected at 1.2%.

French GDP expands

Also we saw expansion in the French economy as well. Earlier on today the French readings came in pretty much in line with expectations with the expansion of 0.2% quarter-on-quarter and 1% growth year-on-year.

Now under normal circumstances when looking at the reaction to this, you would expect to see the currency within those economies rise. What happens is none of that.

EUR/USD

If you look at where we are in the EUR/USD.

As of the close of yesterday we disappeared below this blue dotted line, which is the 1-1 parity level. And that's exactly where we are at the moment. We have recently just tried to get back up above it - there was a little bit of positivity as a result of these GDP numbers, but you can see this direction of travel is down once again.

Now part of this is strength once again in the US dollar. But the moves that we saw yesterday were all about the fact that the European Central Bank (ECB) said it was going to continue to print money and that is expansionary, and that is something where we saw this euro pullback.

So the gains that we've seen up until the close of trade on Wednesday have to a degree evaporated since then and it's really all about the outlook and the worsening economy.

Once again, I think that's really driving this move in the foreign exchange markets with lower euro for a second day in a row.