Euro’s Morning Dance & German Economy’s Dual Tides
Early this week, the euro was in a bit of a feel‑good mood, nudging the U.S. dollar up by a modest 0.14% and peaking around 1.09207 around 9 a.m. GMT. Meanwhile, it took a slightly tumble against the pound sterling, hovering near 0.86870—not quite a nightmare but close to the lowest since November 7. On the flip side, it was on a roll against the Japanese yen, hitting a level last seen only on Monday morning at 163.284.
These pop‑ups came in spite of a mixed bag of German data:
- GDP contraction: Third‑quarter GDP fell by 0.4 % YoY, a sharper slowdown than the expected 0.3 % and the biggest decline since Q1 2021. Quarter‑on‑quarter, the drop was 0.1 %. Faced with an energy supply squeeze and a dip in car & trailer production, industry feels the pinch.
- Trade downturn: Exports dipped 0.8 % and imports 1.3 % compared with the previous quarter.
- Consumption down: Households cut back 2 % and the government 1.6 %. The pricey groceries and less spending on COVID vaccines swung the numbers.
- Services name‑check: Information & communications grew 2.1 % YoY, while real estate and other services held steady, giving a bit of a lift.
- Employment triumph: The labor market hit a record high with roughly 46 million workers—an uptick of 0.7 % or 337,000 new hires from the previous year’s same quarter.
Even though the GDP figures look a tad gloomy, business sentiment has been on the bright side. The ifo Business Climate Index nudged up to 87.3 in November, a new high since July but a touch shy of the 87.5 forecast. That optimism is spilling into manufacturing—especially industries sensitive to energy prices—and trade. Construction remains upbeat despite a low‑level sentiment, while services are mired in gloom, except for tourism and hospitality.
Recent PMI readings for Germany and the Eurozone suggest the contraction is easing and a return to growth is on the horizon. The European Central Bank’s Financial Stability Review (FSR) report re‑assures that banks remain sturdy even in tight credit conditions, pointing to the labor market’s role in keeping the financial system healthy.
Inflation risks, spurred by fears of rising energy costs due to Middle‑Eastern tensions, still loom large. In bond markets, a cascade of data this week lifted the 10‑year European government bond yields, with the euro borrowing cost hitting 2.663 %—the highest in ten days and a notch above the two‑month low.
All in all, the euro’s morning surge, coupled with the “budgetary wobble” and the bread‑and‑butter optimism among German businesses, paints a complex yet cautiously hopeful picture for the Eurozone’s recovery and growth journey.
