Published on 17.08.2022 16:05

The euro is under pressure in today’s trading session against the US dollar after a disappointing round of GDP figures has led to speculation the European economy may be headed for a recession.

Output rose 0.6 percent from the previous quarter against analysts’ expectations for a figure of 0.7 percent and while the data still shows Europe’s economy was on a relatively firm footing coming into the summer, analysts worry that energy shortages will drive record inflation higher still, tipping the continent into a recession.

“We now expect a recession for the euro area, triggered by high energy prices, in turn, a consequence of reduced gas supplies from Russia.” Said Economists at Commerzbank

“For 2023, we expect a partial recovery of EUR/USD when it becomes clear that Europe can meet its energy needs without Russian gas, when energy prices settle down again and when it becomes clear that the ECB resumes its rate hike cycle.” They added.

Inflation is expected to average almost 8% in 2022 -- about four times the European Central Bank’s goal. Officials have stressed the importance of reacting forcefully to prevent expectations of higher inflation from becoming entrenched, though some economists question how far interest rates can be lifted if there’s a recession.

The main driver of the EUR/USD currency as we enter the American session will be the release of monthly Retail Sales figures for July and the headline sales are estimated to register a modest 0.1% growth during the reported month, down sharply from the 1% increase in June. Excluding autos, core retail sales probably shrunk by 0.1% in July against the 1% rise in the previous month.

The news will be closely watched by the US Federal Reserve as it seems they are still undecided on whether to hike interest rates by 50 or 75 basis points at their next meeting so a strong round of numbers may push them towards the later


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