Euro rises today despite mixed data from the German economy

Autor: Monica Preda
3 min

Euro was able to achieve some slight gains against the US dollar this morning by 0.14%, reaching the level of 1.09207 at the peak of the rises at approximately 9:00 a.m. GMT.

Against pound sterling, the euro suffered almost the same losses at the same time when it reached the level of 0.86870, and this level is located slightly close to the lowest levels since the 7th of this November.

While the euro also continued its gains against the Japanese yen, reaching the highest levels that we have not seen since Monday morning at the level of 163.284.

The euro’s gains today came despite a set of mixed data for the German economy. On the one hand, the German economy contracted during the third quarter at the fastest pace in more than two years. On the other hand, business sentiment continued to rise, albeit slightly less than expected.

In detail, Germany’s GDP contracted by 0.4% during the third quarter compared to the same quarter of last year, which was higher than expectations for a contraction of 0.3% and the highest since the first quarter of 2021.

Compared to the previous quarter of the current year, GDP contracted the last quarter by 0.1%, in line with expectations.

The greatest pressure on the economy came from the decline in the energy supply and manufacturing sectors. The manufacturing sector, in turn, was exposed to pressure with the decline in the production of vehicles and trailers.

In addition, foreign trade also declined significantly during the last quarter, with a contraction of 0.8% and 1.3% for exports and imports, respectively, compared to the previous quarter.

We also witnessed a contraction in final consumption expenditure by households and the government by 2% and 1.6%, respectively, compared to the third quarter of last year, in light of the rise in food prices for households.

While one of the most prominent reasons for the decline in government consumption expenditure during the last quarter was due to the decline in spending on COVID-19 vaccines compared to what it was during the previous year.

On the other hand, the service sectors, led by information and communications, which grew by 2.1% on an annual basis, in addition to real estate activities and other services, contributed to supporting the economy in the last quarter.

In addition, the labor market witnessed the highest levels of employment ever with about 46 million persons in work, an increase of 0.7%, or 337 thousand new workers, during the third quarter compared to what it was in the third quarter of last year.

Despite the GDP data, which appears to be negative on the whole, we have seen an increase in the level of business confidence and positive expectations about the health of the German economy for the coming months. The ifo Business Climate Index recorded its highest reading since last July at 87.3 for the month of November, which was slightly below expectations at 87.5.

The high level of confidence supported the improving morale in the manufacturing sectors, especially in industries sensitive to the energy market developments, in addition to a noticeable improvement in the trade sector.

The construction sector has witnessed a continued flow of positive sentiment, although sentiment remains at a generally low level.

While the services sector is more negative in its sentiment and future expectations, with the exception of the tourism and hospitality sectors, according to what the Center for Economic Studies (CES) report indicated.

These numbers today are a continuation of a previous series of data and reports, which, although they still indicate the continued presence of many weak points, have also strengthened expectations of the ability of the German economy and the euro area in general to recover and return to growth.

Earlier this week, the numbers of manufacturing and service purchasing managers for Germany and the Eurozone indicated a decline in the pace of contraction in activities and a gradual approach to growth again. The four preliminary PMI readings were higher than expectations for November.

This week also witnessed the ECB’s Financial Stability Review (FSR) report, which indicated the strength of the region’s banking system despite the tight credit environment, which also emphasized the role of the strength of the labor market in supporting financial health. While the upward risks of inflation, which are reinforced by fears of a rise in energy prices again as a result of any possible escalation of the conflict in the Middle East, remain one of the most prominent factors threatening the financial health of the region’s economy.

In bond markets, a set of data this week helped support rises in ten-year European government bond yields, and the euro as well, to the level of 2.663% today, which represents the highest level in ten days, and this comes after reaching the lowest levels in more than two months.