EUR/USD returns to positive territory on Tuesday. As Kit Juckes, Chief Global FX Strategist at Société Générale notes, the pace of European capital outflows continues to slow – which helps support the Euro.

Good news for Europe (at the margin)

“September saw the smallest net outflow of long-term capital from the Eurozone (EUR 80bn) since 2020. European investors have been net sellers of foreign debt for 7 months in a row, which is convenient, as the ECB pulls back and European Governments issue bonds to finance support for energy consumers. This is good for growth and, at the margin, for the currency – if European investors buy local debt instead of foreign debt, that helps the overall balance of payments. This isn’t unadulterated good news, if only because the current account is in deficit, but it’s an improvement. As is the relative shift in direction of ECB and Fed travel, and the shift in relative growth expectations.”

“The huge elephant in the room – that a prolonged European gas shortage slows growth and raises inflation far more in Europe than it does in other areas (particularly the US), is just one reason why the Euro’s revival (and the Dollar’s turn lower) won’t be in a straight line. But we’ll take the positive of an improving balance of payment as what it is – good news at the margin.”