Eurozone Q1 GDP in line with expectations, EUR/USD still heading lower - Wells Fargo

According to analysts from Wells Fargo, the Eurozone appears to be on solid footing, but economic growth is not likely to break out any time soon. The currency team expects EUR/USD to decline modestly. 

Key Quotes: 

“Data released this morning revealed that GDP in the Eurozone expanded 0.5 percent in Q1 (2.0 percent annualized) and is up 1.7 percent from a year ago. This now marks the ninth consecutive quarter in which the year-over-year growth rate has fallen in the range of 1.5 percent to 2.0 percent.”

“Perhaps the greatest threat to continued economic improvement in the Eurozone is the French Presidential election on May 7. However, if Emmanuel Macron, the candidate of the centrist En Marche! party is elected president, as is widely expected, then a downside risk to the French economy, and the Eurozone will have faded.”

“With GDP growth in the Eurozone relatively tame, it is no surprise that CPI inflation has been somewhat subdued. The overall rate of inflation currently stands just below 2 percent. Although the core rate of inflation is lower, it did jump to 1.2 percent in April from 0.7 percent in March.”

“In our view, the ECB will continue to buy €60 billion worth of bonds each month for the next few months. However, our expectation is that at some point this summer, the Governing Council could announce plans to “taper” its bond purchases further if the economic outlooks remains upbeat and/or inflation continues to trend higher. Against the backdrop of the Federal Reserve, which is expected to hike rates two more times this year, and the ECB, which is likely to remain on hold, our currency strategy team looks for the euro to depreciate modestly against the dollar in coming months.”