09.02.202111:48 Forex Analysis & Reviews: Euro climbs despite eurozone's weak economic performance

The exchange rate of the single European currency climbed on Tuesday and is determined by the growing appetite of market participants for risky assets. The growth of the euro against the US dollar is taking place even though the European economy is currently recovering at a much slower pace than the US economy. The euro against the US dollar gained 0.45% on Tuesday and is trading near the level of 1.2101

Recall that the EU economy has significantly sagged due to the introduction of restrictive measures in many eurozone countries. Yet the recent statements of the European Central Bank President Christine Lagarde regarding the recovery in economic indicators are very encouraging for investors. Lagarde assures that in mid-2021, the eurozone economy will demonstrate a steady recovery. The market participants' appetite for risky assets and demand for the euro is also favored by the epidemiological situation in the European region, which is showing a general improvement.

However, the overall picture is still sobering. Due to the COVID-19 pandemic, there were rather strict restrictions on the territory of the EU countries, as a result of which the eurozone economy in the fourth quarter of 2020 decreased significantly, namely by 0.7% compared to the previous quarter. In annual terms, this figure fell by 5.1%. All hopes of the European government are pinned on widespread vaccination, but to this date, the percentage of the vaccinated population remains low. Eurozone countries are at risk of being among the last to ease existing restrictions. A significant part of the service sector remains closed, so it should come as no surprise that in the first three months of this year, the decline in the economic performance of the European region will continue and, most likely, will go on for several months.

Nevertheless, the day before, Lagarde assured the public that economic indicators will grow in any case, despite the continuing uncertainty. She admits that it is not necessary to expect an early return to the economic activity that was observed in the pre-crisis period, at least until mid-2022.

Lagarde urged the EU's political leadership to approve a special plan worth €750 billion (or $903 billion) to support the recovery of the European economy. Lagarde clarified that this plan should be approved as early as possible so that the European Commission could be in time (next June) to borrow and then distribute the funds.