The global economic turmoil that started in the late 2000s took its toll on major economies like the U.S. and the eurozone. Now, a couple of years after the global economic slowdown had started, it seems that the U.S. is on its way to recovery while the eurozone isn’t there just yet.
Exhibit A
Despite the recent optimism that has taken over the markets, it would be careless to mindlessly buy EUR/USD with the assumption that all will be well in the euro region compared to the U.S. In fact, if we compare the real GDP numbers for both the U.S. and the eurozone, we will see that the U.S. is closer to its 2006 growth rates than the eurozone is.
Remember that the global financial crisis started in the U.S. in 2007 before it spread to other regions like the eurozone. The crisis had more impact on the euro region though, which resulted in a steeper drop in growth rates.
Both economies started recovering in 2009, but with threats of austerity, default, and political instability in the eurozone, the task of printing higher growth rates became harder for the euro region than the U.S.
Exhibit B
It’s also important to point out that joblessness in the U.S. rose in a steeper manner compared to the eurozone during the financial crisis.
However, when 2009 came along, unemployment in the U.S. started to taper off and even decline. Meanwhile, in the eurozone, the percentage of the labor force without jobs continues to climb and is showing no signs of reversal.
Fundamentally speaking, it’s pretty clear that the U.S. is on a better path than the eurozone. But the question on my mind right now is this: Will this translate to dollar strength? Or will the market factors determine which currency will end up on top? What do you think?
