Economic data drives the euro higher, but interest rate differential adjustments still struggle to push the exchange rate through

According to Jushi Data, Société Générale foreign exchange strategist Keith Jucks recently issued a statement indicating that economic data from the United States and the Eurozone have recently provided strong support for the euro. The market continues to focus on U.S. policy directions and foreign investment allocations in U.S. assets, which remain key topics among investors.

Overall economic data favors the euro, but upside potential is limited

Jucks emphasized that the current fundamental economic conditions in the U.S. and Europe are positively supporting the euro exchange rate. Although the interest rate differential between the Eurozone and the U.S. is undergoing structural adjustments trending in favor of the euro, the magnitude of this change is relatively moderate. In comparison, this adjustment level still falls significantly short of the interest rate environment in 2020 that helped push the euro against the dollar above 1.20.

Interest rate differential improvements are unlikely to be the sole driver for a breakthrough in the exchange rate

From the perspective of exchange rate breakthroughs, a slight adjustment in interest rate differentials alone is insufficient to generate enough upward momentum. Jucks’s analysis indicates that while the interest rate differential structure is improving, the extent and pace of this improvement are far from enough to independently propel the euro-dollar exchange rate to a new high. This means that the euro’s rise still depends on sustained economic data support, rather than over-reliance on changes in the interest rate environment.

The key to the current euro trend is maintaining an advantage in economic data. Although the interest rate differential is improving, its influence is limited. Whether the euro can achieve larger gains in the future will still depend on further macroeconomic fundamentals.