Euro gives a boom in the balance of payments – Société Generale

Europe’s current account surplus reached €51bn in June, €370bn (2.5% of GDP) in the 12 months to June. Including what happens to the capital account, the data shows that European MFIs increased their holdings of foreign assets by €547 billion over the past year, and for what it’s worth, the euro system’s reserves now stand at €1,267.5 billion of euros, strategy kit from Société Generale FX. Juckes notes.

Europe’s impressive balance of payments

“This balance of payments boom is a reaction to the collapse of the euro in 2022. EUR/USD fell from 1.24 to 0.96 amid a shocking terms-of-trade crisis and an economic recovery in the US. Since then, the terms of trade have improved, the trade position has recovered, but the currency, even at 1.10, is only halfway to the dollar.”

“The current account position is a combination of a ‘cheap’ currency and a lack of European demand. European imports are 25% lower than they were at the height of the energy crisis. Capital account data, meanwhile, highlights the enthusiasm with which European investors bought foreign assets.”

“If Europe could drive this kind of balance of payments with a combination of stronger domestic demand and strong domestic investment, the euro would return to 1.30. But even so, the message from the data is that the euro has recovered less from the 2022 terms-of-trade shock than the eurozone economy. That helps establish a floor under the euro.”