The Euro is back to gain today, rising 0.22% against the US Dollar after yesterday’s notable decline.
The Euro’s gains come despite the negativity shown by business owners in this month’s Ifo Business Climate Survey, which adds to a string of previous shocking surveys and data that have fueled fears that the German economy could be sliding into recession.
The Ifo Business Climate Index fell more than expected to 85.4 from 86.6. The survey indicated a deterioration in sentiment about the current situation and the future, as the German economy is under increasing pressure.
Pessimism is the common factor among the four sectors covered by the survey, whether regarding the current situation or the future expectations. The manufacturing sector witnessed a notable deterioration, as the sub-reading for this sector fell to its lowest level since 2020, also due to a deterioration in the assessment of the current situation and future expectations.
The business climate in the services sector has also deteriorated, but future expectations are less pessimistic than before. The trade sector is surrounded by a climate of pessimism about the present and the future. In contrast, the business climate in the construction sector has improved in light of the recovery in future expectations, but pessimism about the current situation remains.
These survey results follow yesterday’s S&P Global PMI reports for Germany and the Eurozone for the same period. These surveys carried many negative signs about private sector activity, especially the manufacturing sector, which continues to contract the most in light of deteriorating sentiment, weak demand and fears of falling into recession. Add to this the ZEW Economic Sentiment that we saw last week, which was shocking due to investors’ “hopelessness” about the possibility of a return to growth anytime soon.
On the positive side, the continued flow of negative surveys and data should enhance hopes that the European Central Bank will accelerate the pace of interest rate cuts, which may contribute to reviving the region’s economy.
These combined in turn could keep the yield gap between US and German Treasuries higher, which could be the key short-term pressuring factor on the Euro.
While this gap has narrowed today after widening over the past five sessions, in light of the narratives of both the Eurozone and US economies.
