EUR/USD to Stay Subdued as IMF Highlights US Outperformance
EUR/USD PRICE OUTLOOK: US ECONOMY TO OUTPERFORM AND DRIVE DOLLAR STRENGTH
- EUR/USD price action might continue facing headwinds due to diverging economic growth
- Global GDP growth expected to hit 6.0% this year and 4.4% in 2022 led by the United States
- IMF World Economic Outlook notes how uncertainty remains high due to virus mutations
According to the latest World Economic Outlook released by the International Monetary Fund, global GDP growth is expected to accelerate 6% this year and 4.4% in 2022. This reflects solid upgrades from 5.5% and 4.2% forecasted in the prior update, respectively. The US economy is now estimated to grow 6.4% in 2021 and broadly outpace other developed nations. Moreover, the most recent IMF forecast highlighted how the United States is expected to surpass its pre-pandemic GDP projection next year.
GLOBAL GDP GROWTH FORECAST UPGRADED TO 6% FOR 2021 AMID VACCINE-POWERED RECOVERY
Chart Source: IMF World Economic Outlook – April 2021
Euro-area GDP growth received a modest upgrade to 4.4% while forecasts for the UK and Canada were revised higher as well. China GDP growth was also upgraded by 0.3% to 8.4%. Improving world economic outlook largely follows additional fiscal support and the anticipated vaccine-powered recovery. The IMF also noted that uncertainty remains high owing to new covid variants.
EUR/USD PRICE CHART WITH TEN-YEAR BUND TO TREASURY YIELD DIFFERENTIAL OVERLAID: DAILY TIME FRAME (18 DEC 2020 TO 06 APR 2021)
That all said, there could be potential for EUR/USD price action to continue gravitating lower on the heels of broad-based US Dollar strength. Interest rate differentials between ten-year German Bunds and US Treasuries might remain under pressure due to relative outperformance of America’s economy, which in turn, stands to be supportive of the US Dollar. We outlined this theme in a recent analyst pick when EUR/USD was trading around the 1.1940-price level.
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