EUR: the euro fails to benefit from increased economic activity

Economic activity in Europe picked up over the summer, supporting the shared currency. By postponing its decision on asset purchases until December, the ECB paved the way for a weaker euro.

Europe may have gotten off to a slow start in vaccinating its population against the virus, but it met its goal of vaccinating 70% of its adult population by the end of the summer. Few places in the world can say that, and the economic benefits are beginning to show.

Over the summer, the Euro 2021 soccer tournament led to increased consumer spending. Europeans flooded the beaches of southern Greece, Spain, Italy and France.  As a result, tourism during the summer months resembled pre-pandemic levels.

As revealed in July data released this week by Eurostat, the European statistical office, even industrial production has recovered across the continent - up 7.8% in the eurozone and 8.2 percent in the EU.

Positive economic data supports the common currency

The European Central Bank (ECB) recently released its monetary policy statement. During the press conference, President Christina Lagarde acknowledged the strong momentum in economic activity as ECB staff raised their growth estimates.

Overall, the day went well for the ECB and the euro. Markets reacted well, with stocks rising and bond yields falling slightly. A similar sentiment persisted through the summer, with the common currency buying across the currency board.

But this could come to an abrupt end. The currency market is made up of currency pairs that express the value of one currency against another. Moreover, the ECB has made it clear that the December meeting is the one that counts for withdrawing more stimulus, so there is a high probability that other central banks will do so before then.

In other words, the common currency could suffer, despite the continent's strong economic performance. Therefore, as always, currency traders should pay attention to all the details before placing a trade.