Slip in Euro-Dollar Following French GDP is an Invitation to Buyers: Westpac

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Strategists at Westpac have said they are now buyers of the Euro against the Dollar, owing to a slip in the exchange rate in the wake of French GDP numbers.

The Euro-to-Dollar exchange rate was seen trading as low as 1.2170 ahead of the weekend, fulfilling an entry target ordered by Westpac at 1.2175.

Telling clients conditions for a 'buy' on the Euro were met, Richard Franulovich, Head of FX Strategy, says the pullback in the Euro was triggered to a degree by disappointing data out of France.

The French economy contracted 0.1% in the first quarter of 2021 according to a final estimate from the country's official statistics agency, ensuring the country officially suffered a recession in the first quarter of the year.

The market was taken somewhat by surprise, as the initial estimate for French GDP was for growth of 0.4%.

Sentiment towards the French economy and the Euro were not helped by additional data that showed household spending fell 8.3% in April.

Above: The Euro dips and bounces on May 28. 

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But the outlook for the French economy in the second half of 2021 is certainly a great deal brighter and sentiment towards the Euro is likely to remain robust, making Westpac buyers of the single-currency.

"The rapid increase in vaccination roll-outs is aiding a more rapid reopening of the economy," says Franulovich. "Recent surveys support for a strong pick up in activity in 2H 2021 which should gain further impetus from the eventual distribution of Recovery Funds."

Economist Samuel Abettan at ING says the recovery is finally ready to take off in France, "the economic recovery in France should be one of the strongest in the eurozone."

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ING economists expect a return to pre-crisis levels of activity to take place by the end of 2022, even if the evolution of the health situation remains the determining variable.

ING are expecting consumer spendings in France to come back strongly during the summer period and with the launch of the sales.

Beyond the consumer, ING says French construction and industry are also benefiting from a favourable economic climate with order books filling up.

"The production outlook for these sectors remains favourable, despite short term supply-side issues (shortages of raw materials including electronic chips, higher freight prices, difficulties in hiring in some sectors)," says Abettan.

ING anticipate further upward pressures on prices for all these reasons, reflected already in the harmonised consumer price index (CPI), where inflation increased by 1.8% year-on-year in May.