Home Business News Euro continues to decline with more negative sentiment in Germany and widening yield gap

Euro continues to decline with more negative sentiment in Germany and widening yield gap

26th Jun 24 9:44 am

The euro declines by 0.1% against the US dollar in continuation of its downward trend and reaches the level of 1.07042 shortly after 6:00 a.m. GMT.

Meanwhile, Consumer Climate figures in Germany, which fell to the lowest levels in more than two years, in addition to the widening gap in bond yields in favor of US Treasuries, put more pressure on the euro and prevent stopping the downward trend.

Today’s GfK Consumer Climate figures deepen the gap in economic performance and the sentiment about the future between the Eurozone and the US.

Yesterday, we witnessed a smaller than expected decline in consumer confidence in the US, which came after a better-than-expected performance of business activities and employment.

While the GfK report for June indicated a slight decline in consumer willingness to buy, which reached very low levels, in exchange for a slight increase in the willingness to save, in conjunction with a decline in income and economic expectations. While this decline in income expectations was mainly due to the pressure of rising prices, according to the GfK survey. While the Consumer Climate headline index recorded a reading of -21.8, which was worse than expected at -19.4.

This continued divergence in economic performance would lead to different paths for both inflation and interest rates across the two economies, which could ultimately be reflected in a further widening of the bond yield gap.

While we actually see that the yield gap between US Treasury and their German counterpart continues in its upward trend, which benefits the dollar at the expense of the euro.

On the other hand, the political uncertainty resulting from changes in the partisan landscape in the region may contribute to raising bond yields there, reducing that gap and providing some support to the euro, at least in the short term.

This is what we witnessed clearly in France after the European Parliament elections, where French bond yields rose significantly, reducing the gap with US Treasuries, and this erased all the widening that we witnessed since last September.

This is because the fundamental change in the political reality with the advancement of right-wing parties across the continent may lead to different paths for many very key files, such as the war in Ukraine, immigration, and relations with acting countries in the international community, east and west.

Meanwhile, yield on 10-year Treasury bond continue to advance today, reaching 4.265%, as well as German bund to 2.417%, while French yield remain stable at 3.132%. While the yield spread between 10-year Treasury bonds and their German equivalent continues to rise today and reaches 1.846%, while with French bonds it reaches 1.133%, which is not far from the lowest level for this year at 1.050.

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