Numbers Not So Reliable

The macro point

Let's start with some good news. The private sector activity in the eurozone experienced a strong rebound in August – both in services and manufacturing. Exports are still lagging, notably due to the strength of the euro. However, new orders, mainly within the zone itself, are strongly increasing. This is the first time since May 2024. It's still too early to know if a virtuous circle is starting to form. Nonetheless, it's rather positive. We can also hope that the drop in borrowing costs, driven by the European Central Bank (ECB), will also have positive effects on economic activity in the coming months. No triumphalism for now, just a recovery taking shape. A small caveat, however. Activity in France remains sluggish. This can be explained by the complicated political context and the fact that business leaders fear taxation may change unfavorably. Non-essential investment projects and hiring are frozen.

In the United States, the economic momentum remains favorable. Activity is below the potential growth level of 2%. Nothing dramatic given the length of the American economic cycle. We might even see an acceleration of growth starting in 2026 due to various economic support measures being implemented. For example, the extension of subsidies to the renewable energy sector, notably solar, until 2033.

Finally, in China, the central bank committed a week ago to using all possible monetary policy instruments to ensure the economy has sufficient liquidity. The goal? To reduce refinancing costs and support economic recovery. Borrowing costs are already contained. But the upcoming decrease should further stimulate the manufacturing sector and enhance Chinese competitiveness. Unlike other countries, a rate cut doesn't necessarily lead to an increase in consumption. On the contrary, it "taxes" households (who are net savers) and subsidizes state-owned enterprises, local authorities, and industries (who are predominantly net borrowers). All this reduces the share of consumption compared to production. Good news for China’s partners? Not really. Due to deflation underway in the country and American protectionism, China is massively offloading its surpluses onto its trade partners, particularly Europe. This risks complicating the long-awaited reindustrialization of the Old Continent. In terms of the foreign exchange market, the announcement from the Chinese central bank is a further confirmation that the yuan is likely to continue its downward trend against the euro, which has already started for several months.

Technical point

In the foreign exchange market, the dollar continues to decline. The American bank JPMorgan is roughly aligned with us on the subject. In a research note published a few days ago, it forecasts a 5% drop in the Dollar Index (which measures the dollar's performance against the currencies of the United States' key trading partners) over the next six months. It is consistent. Most of the greenback's fall is likely behind us (-14% against the euro since January). For EUR/USD, this would mean the pair could reach 1.25.

Watch your exposure to the Japanese yen. The currency could depreciate further due to the Bank of Japan's (BoJ) decision to begin selling its ETFs. The schedule plans for 330 billion yen in sales each year. By June 2025, the stock still stood at 37,186.1 billion yen, one of the highest in the world. We can expect fluctuations in JPY assets. Regarding EUR/JPY, the trend is clear. The rise is prevailing. New records could be reached soon.

Announcements to follow

American employment is the main focus this week as it will guide the evolution of U.S. monetary policy in the short term. The expected rate cut in the forex market in October by -25 basis points is conditional on poor job creation figures in September. In recent months, American statistics have been significantly revised. This is not unusual. It's related to a data collection issue that has been present for a decade but has worsened with Covid. Unemployment insurance figures transmitted by the states to the Department of Labor in Washington are less reliable than in the past, hence a sometimes significant gap between the initial job creation estimate and the final one. Clearly, this poses a serious problem for understanding the real state of the American economy. It also complicates the task of the central bank, which is somewhat navigating blind. As a result, overinterpretation of the statistics to be released this Friday should be avoided. They are far from definitive.

Below you will find the publications and events that should have a major impact on currency rate developments.

The information presented in this publication is provided purely for informational purposes and does not constitute investment advice, a sales offer, or a solicitation to purchase, and should not under any circumstances be used as a basis or taken into account as an inducement to engage in any investment.