Euro strengthens above 1.1150 as Eurozone GDP beats forecasts, US midterm election looms

The Euro (EUR) strengthened above 1.1150 during the early European trading hours on Monday as the Eurozone's and Germany's Gross Domestic Product (GDP) data surpassed forecasts in the third quarter (Q3). This resilience comes as traders await Germany's Retail Sales and US ISM Manufacturing Purchasing Managers Index (PMI) reports later in the day.

In Q3, the Eurozone GDP expanded by 0.4% quarter-over-quarter (QoQ), beating the 0.6% growth seen in Q2 and the 0.2% expected. Germany's economy grew by 0.2% QoQ in Q3, higher than the 0.3% increase in Q2, both figures exceeding market expectations. However, credit ratings agency Fitch revised France's outlook to negative from stable due to worsening fiscal conditions and political risks, which may weaken the shared currency in the short term.

Americans will vote on Tuesday in the midterm elections, which could result in the Democratic Party gaining control of Congress from President Donald Trump's Republican Party. Brown Brothers Harriman's Elias Haddad noted that "resilient Eurozone economic activity and inflation projected to remain above target for an extended period keep a December rate hike to 2.75% firmly in play (86% priced in)."

He added that "real GDP rose 0.4% q/q in Q3 vs. 0.6% in Q2, double the consensus forecast, as growth in Spain and Germany offset France's contraction." However, France's ongoing fiscal troubles could drive EUR/USD down to 1.1000, indicating that country-specific risks could still impact the currency. The ECB's upcoming leadership change is not expected to alter the near-term policy outlook, according to BBH, with no significant implications for EUR.

The ECB Governing Council, consisting of 21 members with voting rights, will meet on November 26-27 to discuss the appointment of the next president, with Spain's Pablo Hernandez de Cos and the Netherlands' Klaas Knot as frontrunners. ECB Governing Council member Jens Nagel delivered a stronger-than-usual warning on inflation, with an FXS Speechtracker score of 8.2, indicating a hawkish shift.

The ECB has pledged to take "decisive action if needed" to bring inflation back to its 2% target, reinforcing expectations of further policy tightening if price pressures persist. The Euro is the official currency of the 20 European Union countries comprising the Eurozone, being the second most heavily traded currency globally, behind the US Dollar.