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Euro under pressure again as German consumer sentiment collapses

February 26, 2025 (Investorideas.com Newswire) Investorideas.com, a go-to platform for big investing ideas releases market commentary from Samer Hasn, Senior Market Analyst at XS.com

The Euro is slightly lower against the US Dollar today by around 0.1% while still holding near the 1.0501 level.

The Euro's decline today comes as a renewed stream of negative signals from Germany comes with the worse-than-expected reading of the GfK Consumer Climate index. The Euro is also under pressure from Treasury yields trying to recover after consecutive losses that worsened yesterday with the weaker-than-expected Consumer Confidence data.

Meanwhile, the Euro is still benefiting this month from the narrowing gap between US Treasury yields and their Eurozone counterparts. The gap between the US 10-year Treasury bond and its German counterpart reached its lowest level since last November at 1.828% before widening slightly during the day.

In today's data, the headline reading of the GfK Consumer Climate index for February recorded its lowest reading since last March at -24.7, which was also below expectations. This comes with a decrease in the willingness to buy and income expectations in exchange for an increase in the willingness to save, according to the results of the GfK survey.

This negativity among the German consumer stems mainly from high prices, economic and political uncertainty, and dissatisfaction with the political reality, according to consumer expert at the Nuremberg Institute for Market Decisions Rolf Bürkl in his comment on the results in the report. In addition to these factors, there are concerns about job losses as a result of factory closures and increasing bankruptcies, according to the report as well.

A new factor that may significantly affect the euro's movements in the future is the momentum surrounding the possibility of reforming what is known as the "debt brake" in Germany, in addition to the increasing trend towards increasing military spending. While easing borrowing restrictions in Germany would increase the supply of bonds and may increase inflationary pressures.

The future of these files is still not decided, as the fate of the rules for debt limits will depend on the shape of the next coalition in the German parliament after the victory of the Christian Democratic Party, which did not obtain a majority. If there is no agreement on easing debt restrictions and in order to maintain current rules, in light of the need to increase defense spending, governments might be required cutting spending on other programs or raising taxes, according to the Wall Street Journal. This, if it happens, would exacerbate political discontent and may increase the burden on the economy that is suffering from a recession.

In contrast to the negativity surrounding the region's economy, weaker-than-expected data from the United States, which comes amid economic uncertainty, in addition to the continued positive signs about the possibility of stopping the war in Ukraine, may put the euro in a better position to confront the strength of the dollar.

Yesterday, we witnessed an unexpected decline in Consumer Confidence in the US, and the index recorded a reading below the 100-point threshold for the first time since last September. While uncertainty about the future of business and stubborn inflation were among the most prominent factors frustrating consumers, according to The Conference Board report.

This comes after an unexpected contraction in services activities in February and a decline in business sentiment to its lowest level since December 2022 amid the prevailing uncertainty since Donald Trump took office as president of the White House, according to the S&P Global PMI report.

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