Euro pressured by German pessimism

Alexander Kuptsikevich FxPro

The German Consumer Climate Index declined in January, impacting the eurozone's largest economy and applying pressure on the single currency. The index fell by 1 point to -22.4 by February, having remained deeply negative since late 2021 without showing an upward trend since mid-last year. The report highlights a decrease in income expectations and purchase intentions, potentially linked to an increase in inflation.

Furthermore, the German Ministry of Economic Affairs adjusted its GDP growth forecast for 2025 from 1.1% to 0.3%, following contractions of 0.3% and 0.2% in 2023 and 2024, respectively. This economic situation underscores the need for continued monetary policy easing by the ECB despite indications of rising inflation.

Market participants are anticipating further rate cuts from the ECB, with expectations of a quarter-point reduction this coming Thursday and additional cuts later this year. In contrast, about two cuts are expected from the Fed and the Bank of England, with the possibility of fewer reductions in the US.

These market expectations suggest a potential decline in the euro against the dollar and pound, influenced by technical factors. The EURUSD rally from 13 to 27 January appears to be a technical rebound following the decline since October. The recovery lost momentum after surpassing the 50-day moving average and the 1.05 level. EURUSD is likely to consolidate below the 1.05 level, which could lead to declines below parity.

Regarding macroeconomic factors, especially consumer demand, the euro also seems weaker compared to the pound. The EURGBP pair declined for the fifth consecutive trading session, completing its technical rebound. Bearish sentiment resumed after reaching the 200-day moving average level. The euro has been depreciating against the pound since October 2023. The pair is approximately 1.75% above cyclical lows at 0.8250 but may retest these levels in the coming weeks. Consolidation below this mark could result in a fundamental reassessment of attitudes towards the euro, similar to the period in 2014-2015 when EURGBP fell below 0.7000.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

EUR/USD hits two-day highs near 1.1820

EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.

GBP/USD reclaims 1.3600 and above

GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.

Gold climbs further, focus is back to 45,000

Gold regains upside traction and surpasses the $4,900 mark per troy ounce at the end of the week, shifting its attention to the critical $5,000 region. The move reflects a shift in risk sentiment, driving flows back towards traditional safe haven assets and supporting the yellow metal.

Crypto Today: Bitcoin, Ethereum, XRP rebound amid risk-off, $2.6 billion liquidation wave

Bitcoin edges up above $65,000 at the time of writing on Friday, as dust from the recent macro-triggered sell-off settles. The leading altcoin, Ethereum, hovers above $1,900, but resistance at $2,000 caps the upside. Meanwhile, Ripple has recorded the largest intraday jump among the three assets, up over 10% to $1.35.

Three scenarios for Japanese Yen ahead of snap election

The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.

XRP rally extends as modest ETF inflows support recovery

Ripple is accelerating its recovery, trading above $1.36 at the time of writing on Friday, as investors adjust their positions following a turbulent week in the broader crypto market. The remittance token is up over 21% from its intraday low of $1.12.