Euro Concerns Remain Despite Positive Economic Output

Euro Concerns Remain Despite Positive Economic Output

Thursday 4th February 2021 – 10:15 (GMT)

The latest data out of the European Union would suggest things were going as well as could be expected within a region that represents around a 6th of the entire global economic output. But underneath the surface there are enough concerns that even with the positive readings, euro strength has been diminishing in the early part of 2021.

Primary concerns remain around the trading blocs ability to react in a cohesive and timely manner to the ever-changing coronavirus pandemic. First, it was the historic €750 billion bailout package that took the longest to agree out of all developed nations and is still yet to be fully distributed amongst countries who need it most.

Then, it was the debacle over vaccine orders that led to a 3-month delay before agreement on amounts and suppliers were resolved. Worse still, there now appears to be too little supply to satisfy EU requests and has driven some of its members to negotiate side deals with Russia for doses of the now certified effective Sputnik V solution.

And finally, the realities of losing one of its biggest net contributors is beginning to set in as member states that had previously been used to taking funds out of central coffers, are now being asked to contribute for the first time in order to help balance the books.

All this means the euro has lost around 3% of its value against both the pound and the US dollar since the beginning of the year as investors look to safer bets to weather current market turbulence.

The medium-term trajectory for most currencies this year will be defined by vaccine rollouts and their effectiveness. The first country to re-open and return its citizens to a new normality closer to the one prior to the 2020 outbreak will likely see its currency strengthen the most. Europe has a lot of ground to make up in this regard and therefore euro strength seems a lot less likely as things stand.