Europe’s current account surplus reached EUR 51bn in June, EUR 370bn (2.5% GDP) in the 12 months to June. Including what is happening with the capital account, the data show that European MFIs increased their holdings of foreign assets by EUR 547bn in the last year, and for what it’s worth, the Euro system’s reserves are now EUR 1,267.5bn, Société Generale FX strategist Kit Juckes notes.

Europe’s impressive balance of payments

“This balance of payments boom is a reaction to the Euro’s collapse in 2022. EUR/USD fell from 1.24 to 0.96 amidst a shocking terms of trade crisis and a US economic recovery. Since then, the terms of trade have improved, the trade position has recovered, but the currency, even at 1.10, is only half-way back to where it was against the dollar.”

“The current account position is a combination of a ‘cheap’ currency and a lack of European demand. European imports are 25% lower than they were at the peak of the energy crisis. The capital account data, meanwhile, highlight the enthusiasm with which European investors have been buying foreign assets.”

“If Europe could run this kind of balance of payments with a combination of stronger domestic demand and strong domestic investment, the Euro would be heading back to 1.30. But even so, the message of the data is that the Euro has recovered less from the 2022 terms of trade shock, than the Eurozone economy has. That helps put a floor under the Euro.”