EU Recovery Fund ratification should lift growth prospects and the euro despite continuing covid related restrictions, but EUR gains will meet the resistance of the European Central Bank, economists at Westpac inform.
US underemployment is now below the EU and falling fast
“Although FOMC fallout might cause some near term shifts, recent EUR rebounds are taking it to the upper bounds of its recent range and are likely to induce ECB countering comments. In last week’s ECB press conference Lagarde stated that EUR appreciation would limit inflation pressures and that near-term price rises would be temporary. ECB inflation projections are below target throughout the forecast period and so EUR appreciation will likely be resisted.”
“EU leaders meet at the end of next week to discuss how to reduce post-pandemic unemployment and will have seen the latest regional unemployment data. The US unemployment level is already back below the EU's and declining fast while the EU is still supporting employment. EU will have to ensure rapid deployment of the Recovery Fund and easing restrictions to avoid US garnering a more positive employment profile once again.”
“EUR/USD looks set to remain in the upper half of its 1.17-1.22 range, but is likely to struggle towards range resistance.”