German Business Confidence Weakens, Euro Gains Despite Headwinds

EUR/USD Technical

German business confidence weaker than expected

The euro has started the week in positive territory on Monday. In the European session, EUR/USD is trading at 1.0914, up 0.18%.

It was a week of sharp swings for the euro, which posted strong gains during the week but reversed directions on Friday and declined 0.88%. Still, the euro posted a winning week, rising 1.2% against the US dollar.

German business confidence dips

Germany’s Ifo Business Climate was softer than expected, dropping to 86.4 in December. This was down from a revised 87.2 in November and missed the market consensus of 87.8. Business conditions and business expectations also eased in December and were shy of the forecast, as companies remain pessimistic about the German economy. The lack of confidence mirrors the prolonged weakness in the German economy.

December PMIs indicated contraction in both the services and manufacturing sectors. Germany, the largest economy in the eurozone, also reported a decline, with the PMI falling to 48.4, down from 49.6 in November and short of the consensus estimate of 49.8. The servicaes industry has contracted for five straight months while manufacturing has been mired in contraction since June 2022.

ECB stays hawkish

The European Central Bank held the benchmark rate at 4.0% for a second straight time on Thursday. This move was expected but the central bank pushed back against market expectations for interest rate cuts next year, sending the euro soaring over 1% against the US dollar after the announcement.

There is a deep disconnect between the markets and the ECB with regard to rate policy. The ECB remains hawkish and Reuters reported on Friday that ECB governors are unlikely to cut rates before June. The markets are marching to a very different tune and have priced in at least in around six rate cuts in 2024, with the initial cut expected around March. Lagarde has insisted that the central bank’s decisions will be data-dependent rather than time-dependent and she may have to join the rate-cut bandwagon if inflation continues to fall at a brisk pace.

Advertising

EUR/USD Technical

EUR/USD is putting pressure on resistance at 1.0929. Above, there is resistance at 1.0970
1.0855 and 1.0814 are providing support

Advertising

Akash Girimath

Akash Girimath is a Mechanical Engineer interested in the chaos of the financial markets. Trying to make sense of this convoluted yet fascinating space, he switched his engineering job to become a crypto reporter and analyst. Akash trades cryptos on a regular basis and maintains a small fund for friends and family.

Current work at FXStreet

Akash Girimath is a crypto analyst at FXStreet, covering the vast crypto ecosystem from both the technical and fundamental perspectives. He also reports about important developments in the crypto space.]]

Previous financial experience

Prior to joining FXStreet, Akash worked as a crypto analyst and writer for two years at AMB Crypto.

Educational background

Akash finished collegiate studies of Mechanical Engineering at the KLE Institute of Technology (KLEIT), from Visvesvaraya Technological University (VTU) in 2015.