Euro dips lower on weak German data

• Germany’s GDP contracts in Q1
• German consumer confidence remains deeply pessimistic
• FOMC minutes shows uncertainty over rate path

EUR/USD is down for a third straight day. In the European session, EUR/USD is trading at 1.0727, down 0.21%.

German GDP contracts in Q1

Germany’s economy contracted by 0.3% in the first quarter, after a 0.0% in Q4 2020, which was also the estimate. The GDP report noted that German consumers are spending less and government expenditures were also down due to the discontinuation of Covid vaccines and tests. Germany is the largest economy in the eurozone, and the decline in growth is an ominous sign of the strength of the eurozone economy. The eurozone continues to grapple with high inflation and rising interest rates, which are weighing on economic activity.

Germany released Gfk Consumer Confidence for June, which remains mired in negative territory. The reading of -24.2 was up from a downwardly revised -25.8 and just below the estimate of -24.0. This release follows a soft Ifo Business Climate, which fell to 91.7, following a downwardly revised 93.4 and shy of the estimate of 93.0 points. This was the first decline after a six-month expansion. Business expectations dropped from 91.7 to 88.6 and missed the estimate of 91.9 points.

The data points to businesses and consumers remaining pessimistic about economic conditions. Businesses are concerned about banking turmoil in the US, a rocky Chinese reopening and a struggling eurozone economy all weighing on sentiment. Consumers are unhappy about the cost-of-living crisis and have cut back on spending.

Fed divided over interest rate path

The FOMC minutes indicated that the Fed’s rate path is not clear. Fed officials were divided at the May meeting, with some members seeing a need for further increases as inflation was not falling fast enough. Other members argued that the economy was cooling and there was no need for more tightening. The vote to hike rates by 25 basis points was unanimous and the members agreed that inflation was unacceptably high and was declining slower than expected.

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EUR/USD Technical

• There is resistance at 1.0824 and 1.0887
• EUR/USD is testing support at 1.0742. Below, there is support at 1.0660

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