Today, the euro is trying to consolidate again against the US dollar (EUR/USD) after the recent losses, rising by 0.25% this morning and signing near the 1.09191 level.
Euro is trying to resume its gains this morning despite the short downward pressure that came from the sharper-than-expected decline in the sentiment in Germany in addition to the continued sharp decline in bond yields.
However, the continued weakness of the US dollar and the decline in Treasury bond yields have contributed to providing support to the euro despite the negative factors surrounding it.
Confidence in the German economy has declined after rebounding over the previous three months. The Ifo Business Climate Index recorded a reading of 86.4, the lowest reading since last September, and it was also below expectations of 87.8.
As for the sub-indices, the Current Assessment Index recorded the lowest reading since August 2020 at 88.5, which was also below expectations at 89.5. The Business Expectations Index also broke a four-month streak of increases and fell to 84.3, which was below expectations of 85.8.
Speaking of business sectors, Ifo indicated in a report that all sectors, except services, have recorded a further decline in current assessments and have become more pessimistic about the first half of next year. What was noticeable was the decline in the Business Climate Index for the construction sector to the lowest level since 2005.
It appears that fears of a return to high inflation and the subsequent continued monetary tightening and political turmoil in Germany, in addition to geopolitical concerns and the aggravation of the ongoing conflict in the Middle East, are still putting pressure on the confidence of business owners and making expectations for a restoration of growth currently far away.
This is what many reports and surveys have indicated over the past two months, despite the improvement in sentiments at that time.
In bond markets, persistently falling yields continue to prevent the euro from holding on to its gains for too long. Ten-year German bond yields are approaching to record the lowest daily close this year and erasing all of its gains, with it reaching 2.002% today, which is also the lowest levels that we have not seen since last March and January.
However, a further decline in US bond yields may contribute to reduce that negative effect, with ten-year Treasury bond yields reaching more of the lowest levels since last July at 3.894%.