Euro slumps as EU slash economic forecasts
The euro fell against most major currencies as the European Commission slashed its 2020 and 2021 economic forecasts. According to the institution in Brussels, the toll of the coronavirus pandemic will force the 27 EU economies to contract by 8.3% this year, with a modest rebound of 5.8% in 2021.
It was only in May that the Commission forecast a contraction of 7.4% this year, with a rebound of 6.1% in 2021. The slash in economic forecasts is due to the fact the Euro area economy most likely shrank by 13.5% in the second quarter of this year.
In a statement released on Tuesday, Valdis Dombrovskis, the vice-president of the European Commission said: "The economic impact of the lockdown is more severe than we initially expected. We continue to navigate in stormy waters and face many risks, including another major wave of infections."
One major issue for the bloc is the fact the economic recovery is forecasted to be uneven across member states. The International Monetary Fund (IMF) said that France, Italy and Spain could contract by more than 10% this year, with the German economy forecast to contract by 6.3%.
The imbalance in economic terms is likely to create more tensions between member states with diverging policy views. The bloc is currently struggling to find a compromise regarding the coronavirus recovery plan due to diverging views on how to help member states hardest hit by the impact of Covid-19.
The euro fell the most against the US dollar but weakened across most cross rates. Below is the long-term, monthly price chart of the EURUSD available via Admiral Markets on the MetaTrader trading platform.
Source: Admiral Markets MetaTrader 5 SE, EURUSD, Monthly - Data range: from 1 October 2007 to 7 July 2020. Please note: Past performance is not a reliable indicator of future results.
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