The Euro Strikes Back: A Quick Lift Against the Dollar
US Treasury Yields: A Welcome Wind Behind the Euro
- U.S. 10‑year yields slid below 4.4%, making U.S. bonds a cheaper playground for investors.
- Lower yields translate into a lower real return on dollar assets, drawing money toward the euro.
- After the Fed’s cautious tone last week, the market still feels that the “buy the dip” magnet is pulling harder.
German Consumer Angst: The GfK Consumer Confidence Index Drops
Last month the GfK Consumer Climate Index hit a carry‑over slump of -23.3—the lowest reading since April. What caused that?
- Sharp fall in income expectations (people just don’t see their paycheck growing).
- More folks are saving rather than spending—the “I’m paying attention, not buying” vibe.
- Entrepreneur Rolf Bürkl points out that rising insolvencies and job losses keep the mood gloomy.
Business Pulse in Decline: Ifo and PMI Vibes
The Ifo Business Climate and S&P Global Purchasing Managers’ Index (PMI) last week painted a bleak picture.
- Manufacturers, service providers, and construction firms are growing “floundering” anxieties about both the present and future.
- Germany’s and the eurozone’s service sector contracted unexpectedly in November.
- Despite this, the U.S. PMI suggests a rebound post‑election, but the Fed still keeps the pace of cuts in check.
ECB vs. Fed: Countdown to Rate Cuts
There’s a feeling that this economic slowdown could compel the European Central Bank (ECB) to deliver a 50‑basis‑point rate cut in December, as hinted by the Financial Times. Meanwhile:
- The Federal Reserve remains meticulous, advocating a gradual approach to cuts.
- Fed minutes reinforce that worries of a labor‑market or economic slowdown are “diminishing.”
- With the U.S. January cut probability at a low 15%, the ECB’s potential move can sway the euro harder.
What This Means for the Euro
Even with some headwinds, the euro’s upward movement today feels buoyed by:
- The dip in U.S. Treasury yields—making the dollar less tempting.
- The stable, though low, German bund yield—keeping the eurozone bonds appealing.
- A widening 10‑year yield gap of 2.11%—still hovering near highs seen last April.
Bottom line? The euro’s ride isn’t over yet, but each tick in the U.S. bonds market might help keep it on an upward trend—at least until more data points in Germany and the ECB’s policy moves come in.
