EUR Under Pressure Amid Recession Fears

August 24, 2022 11:10

The EUR remains under pressure and under parity against the USD amid growing recession fears, but the Eurozone’s single currency could see some relief tomorrow when GDP results for the US are set for release. 

Preliminary annualised GDP for the second quarter is expected at the level of minus 0.8 percent versus minus 0.9 percent previously. The question is whether the technical recession in the US will settle in and continue into the third quarter. If the latest Purchasing Managers Index (PMI) figures are anything to go by, there’s a distinct possibility that negative growth in the world’s largest economy may persist in the short term. 

The S&P Composite PMI for the US fell to 45 in August from 47.7 in July, indicating further contractions in the important manufacturing and services sectors. Services contribute a majority of economic activity to overall GDP in the US. Professional, scientific and technical services alone accounted for 975.1 billion USD added to productivity in 2020.

When this sector is hit by inflation and starts contracting, the only relief from a hawkish Federal Reserve may be fiscal measures like tax cuts and price controls. So far, there is little evidence that US fiscal policy makers are taking concerted action to avoid a hard recession, given that US national debt moved above 30 trillion USD at the beginning of this year. As the risks to growth pile up, however, this could change in the fourth quarter. 

Coming up later today, the US Durable Goods Orders report for July is on the agenda for USD traders. Current market consensus is for a contraction from 2 percent in June to 0.6 percent in July, and any unexpected downside or upside developments could move the USD currency pairs. 

Forex traders should be on alert for central bank updates reported by the media covering the Jackson Hole Symposium which starts today. Attended by central bankers and other financial officials from around the world, media statements made by leading bank officials can move currency markets. 

The most-watched speeches at the banking symposium include those by Federal Reserve Chairman Jerome Powell. The central bank heavyweight is expected to maintain hawkish rhetoric even against a background of recession and slowly easing inflation. 

Last on our agenda of red-flagged trading events is the US Pending Home Sales report released later today. July’s result is expected at the level of 0.8 percent compared to minus 8.6 percent in June, and traders could price in any unexpected results into the value of the USD.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Sarah Fenwick
Sarah Fenwick Financial Writer, Admirals London

Sarah Fenwick's background is in journalism and mass communications. She has worked as a correspondent covering Swiss Stock Exchange news and written about finance and economics for 15 years.