The Euro resumes gains today after yesterday’s break, rising slightly by 0.07% against the US Dollar and consolidating near 1.11687, which is close to its highest levels in more than a year.
The Euro’s moves come as German consumer sentiment fell sharply and more than expected in the GfK survey for August, along with a number of negative factors surrounding the economy and the labor market.
On the other hand, what supports the Euro is the continued momentum around a US interest rate cut starting next September after Jerome Powell’s speech and his explicit talk about the readiness to cut rates. Markets are expecting a 25-basis point cut by 71% compared to a 29% chance of a half point cut, according to CME FedWatch Tool.
This also comes in conjunction with markets anticipating a rate cut by the European Central Bank next September. Monetary policymakers have shown more flexibility towards resuming interest rate cuts for a second time this year despite concerns about inflationary pressures.
In today’s data, the GfK Consumer Climate Index fell more than expected in August, reaching -22 points. This came as income expectations fell sharply due to declining optimism surrounding the European Football Championship and concerns about job security, according to Rolf Buerkl, a consumer expert at the Nuremberg Institute for Market Decisions. These consumer concerns stem from rising unemployment, corporate insolvencies and staff reduction, Buerkl explained.
In bond markets, the continued narrowing of the yield gap between Treasuries and eurozone bonds is supporting the single currency, although the region’s economy is not providing encouraging data to suggest that sustainable growth is nearing recovery. The yield gap between the US 10-year Treasury note and its German counterpart hit 1.554% yesterday, the lowest level in a year.
