Forex News German ZEW economic sentiment misses forecasts; euro extends losses

Forex News – German ZEW economic sentiment misses forecasts; euro extends losses

Posted on August 22, 2017 at 12:07 pm GMTChristina Parthenidou, XM Investment Research Desk

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Germany’s ZEW economic sentiment indicator for the month of August highlighted on Tuesday that German investors feel less optimistic about the outlook for the economy in the next six months, adding to the euro’s losses. However, the negative impact on the currency was softened as views on the current economic conditions came in higher than expected.

According to the figures, the German ZEW economic sentiment index, which is a closely watched survey that asks companies about their six-month expectations regarding economic conditions, came in lower than projected. While forecasts were for the indicator to decrease by 2.5 points to 15 in August, the actual decline was 7.5 points with the indicator standing at 10 instead, below the 23.8 long-term average. This was the third consecutive drop since the index touched a 21-month high of 20.6 in May.

The main factors weighing on the index were weaker exports and the ongoing scandals in the automobile industry. Monthly exports in July dropped unexpectedly by 2.8% after rising for five consecutive months, while the car makers Volkswagen, BMW and Daimler continued facing allegations of more than a decade of collusion, with the companies developing a cartel over the period to cheat on diesel emission tests in the US.

Despite this, the ZEW President, Professor Achim Wambach, expressed that overall the country’s economic outlook “remains relatively stable at a fairly high level”. Note that the preliminary GDP growth figures for Germany for the second quarter increased surprisingly to 2.1% year-on-year, posting the highest growth since August 2016.

Moreover, ZEW participants, in contrast to their pessimistic forecasts about future conditions, held an optimistic stance over the current economic situation. The corresponding ZEW index rose to 86.7 in August, exceeding the anticipated figure of 85.5 and the 86.4 seen in the previous month. This was close to the six-year high of 88.0 reached in June.

Meanwhile, the ZEW economic sentiment for the eurozone was also published on Tuesday, showing a moderation in investor’s future expectations. The index fell by 6.3 points in August to 29.3, missing the forecast of 34.2.

Looking at the reaction in the forex markets, the euro reversed yesterday’s gains against the dollar, falling by 0.17% to an intra-day low of $1.1751. Euro/yen declined by 0.21% to 128.41, while euro/swiss franc slid by 0.11% to 1.1351.