Euro rises despite soft German business climate

The euro has started the week with gains. EUR/USD is trading at 1.0727 in Monday’s European session, 0.34% on the day.

German Business Climate surprises with dip

Germany’s Ifo Business Climate surprised on the downside, declining to 88.6 in June. This was down from 89.3 in May and missed the market estimate of 89.7. Business expectations eased to 89.0, down from 90.4 in May. The German economy, the largest in Europe, has been stagnating. Germany’s inflation rate fell to a three-year low of 2.2% in March and April, but then rose to 2.4% in May.

For the European Central Bank, the improved inflation picture in both Germany and the eurozone is good news and policy makers are hoping that inflation will continue to drop towards the 2% target. The ECB lowered interest rates earlier this month and needs to see evidence that inflation will remain sustainable around the 2% level before it feels comfortable cutting rates again. The ECB meets next on July 18th and is expected to hold rates at 3.75%.

There are no US releases on Monday and the focus will be on Fedspeak, with public remarks from two FOMC members, Christopher Waller and Mary Daly. The Fed has been hawkish and has signaled just one rate cut before year’s end, compared to three rates early this year. The Fed has been concerned about sticky inflation and has stressed that it is no rush to cut rates until inflation resumes its downswing. The markets have priced in an initial rate cut for September, but that is far from a done deal, with a likelihood of 60%, according to the CME’s FedWatch.
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EUR/USD Technical

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