This is surprising for EUR/USD traders, who implement strategies based on fundamentals. Higher US GDP growth should result in a growing demand for the US currency and its appreciation. We should expect less US dollars paid for a certain amount of euros. The EUR/USD exchange rate should fall.
Surprisingly, this kind of relationship cannot be found in data. This is shown in the chart below. In fact, the positive correlation can be seen with the naked eye. The low and high points of both variables visibly correlate with each other. The correlation coefficient of both variables is 0.2 and this level means that the observed relation is not very strong but also not accidental. The traders seem to buy US dollars for EUR when the US economy goes down and this can be seen especially during the crisis.
There is one more thing. The presence of correlation does not prove that there is a cause-and-effect relationship between the variables. More likely, there is another variable, like the changing amount of money in circulation, which makes the relationship of US GDP and the dollar value unimportant. Despite the proven correlation, buying the dollar when the US economy goes down would still be a very risky strategy.
Who is printing more money now - US or Eurozone?
 |
| US GDP QoQ growth vs EUR/USD exchange rate growth 2006 - 2021 |
Back To Home Page