The euro remained resilient across most of the session, despite mounting evidence that the German economy is heading towards a recession. German ZEW sentiment data dived to -44.1, the worst level in seven years and an exorbitant miss, versus expectations of -28.5 and a previous print of -24.5. The figures point to a serious and significant deterioration in the outlook for the German economy; a toxic cocktail of the recent escalation in the US – Sino trade tensions, the increased likelihood of a no-deal Brexit adding to already soft economic growth.
Investors will now look ahead to German GDP data due for release tomorrow. The expectation is that the German economy contracted. However, with uncertainty from the US – Sino trade war expected to continue hitting demand for German exports, Europe’s largest economy could well be heading for a recession.
Dollar gains
The dollar rose moderately following the release of US inflation data. CPI increased to 1.8% YOY ahead of the 1.7% forecast. Core CPI, which excludes more volatile items such as food and fuel, unexpectedly ticked higher to 2.2% YoY, ahead of the 2.1% forecast. However, the dollar strengthened considerably on the announcement that the US could delay tariffs on some Chinese imports until December. With little in the way of positive news surrounding the US – Sino trade dispute recently, investors were quick to react, pushing the dollar higher.
Geopolitical concerns, (Hong Kong and China) in addition to ongoing trade concerns and the impact on global growth has been a central focus for dollar traders. Recession fears have been growing recently. An easing of trade tensions is positive for the US economy. This plus an unexpected tick higher in inflation is proving to be supportive of the greenback.
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