Europe has endured some difficult months, but there is growing confidence in the eurozone's ability to push back against the pandemic
The longer that businesses are affected by lockdown measures that mitigate the spread of COVID-19, the more severe the long-term consequences on the global economy. These measures are essential, but several economies and industries in Europe have struggled to simply tread water during the pandemic. However, Europe's relative success in managing the spread of coronavirus and the news of a possible €750 billion EU recovery package may enable the euro to start making progress.
The uncertainty of a post-coronavirus economy
The shape of a post-pandemic economy will be largely determined by the pharmaceutical and life science firms battling coronavirus. Investors have been desperate for clarity, with traders jumping on pharmaceutical stocks in the hope that the firm will make a breakthrough in the fight against COVID-19. For example, the Synairgen investing bandwagon saw its share price rise over 750% in the opening months of 2020.
Conversely, the worsening of the virus spread earlier this year saw massive pharmaceuticals like Pfizer and Johnson & Johnson slumping in the stock market. This is indicative of how the power of public sentiment can influence the stock market, with increased volatility hampering economies' ability to make meaningful growth. Until a vaccine is discovered, the entire stock market in the European Union and beyond will be prone to dramatic fluctuations.
The comparative 'success' of Europe's fight against coronavirus
The Euro may be able to make gains in the EUR/USD currency pair, despite the lack of clarity created by the lack of a vaccine. The EU is not ushering in a period of economic prosperity, but its pandemic response compares favourably to other regions. The EUR/USD live chart tracks the fortunes of the Euro against the US Dollar, with the two regions' responses to the pandemic perhaps encouraging traders that EUR is a more worthwhile investment than USD in both the immediate future and the post-COVID economy.
This is a different story from March and April, where the Euro faltered, and traders flocked to the perceived safe haven of the US dollar. The US has surpassed two million cases of the virus, hospitalisations are rising, and there is an absence of cohesion in different states' response to the pandemic. This has created concerns about when the US might have coronavirus under control, leaving the fate of the US economy mired in doubt.
While Europe has endured some difficult months, there is more confidence in the eurozone's ability to push back against the pandemic. Fears of a second spike will temper optimism until a vaccine is unearthed, but businesses in the eurozone may be able to operate in a safer and more normal fashion sooner than US contemporaries. This could provide a boost to the Euro against the dollar in the coming weeks and months.
Encouraging signs for EU fund
The eurozone may be given new economic impetus by the creation of a €750 billion coronavirus recovery package, with German Chancellor Angela Merkel hopeful that the fund will be approved by the EU in July. The purpose of the fund would be to provide stimulus to the region's economic recovery during and after the pandemic, while addressing disparities that have developed across the eurozone throughout the spread of coronavirus.
Austria, Denmark, Sweden, and the Netherlands have shown resistance to the recovery package. The package would be funded by joint debt issuance to EU members, with those dissenting nations worried that taxpayers would be hit unfairly by repayments down the line. However, these nations have recently shown some signs of a willingness to relent in their opposition to the recovery package.
The confirmation of that package may inspire traders to invest in the Euro, with news of economic stimulus of this size generally something that sends currencies spiralling upwards in value. Crucially, the approval of that EU fund would provide valuable clarity in a time of continued uncertainty, with clarity set to remain a rarity until a vaccine is discovered.