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Breaking: German IFO Business Climate Index unexpectedly rises to 89 in August vs. 88.6 expected

  • German IFO Business Climate Index surprises to the upside in August.
  • EUR/USD keeps range near 1.1700 after German sentiment data.

The headline German IFO Business Climate Index rose to 89 in August from 88.6 in July. The data beat the market forecast of 88.6.

Meanwhile, the Current Economic Assessment Index dropped to 86.4 during the same period from 86.5 in July, missing the expected 86.7 figure.

The IFO Expectations Index, which indicates firms’ projections for the next six months, jumped to 91.6 in August versus 90.7 previous and 90.2 expected.

Market reaction to the German IFO Survey

EUR/USD pays little heed to the mixed German data to trade near 1.1700, 0.15% lower on the day at the press time.

Euro Price Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the weakest against the US Dollar.

USDEURGBPJPYCADAUDNZDCHF
USD0.19%0.10%0.34%0.07%0.01%0.02%0.12%
EUR-0.19%-0.10%0.09%-0.13%-0.11%-0.18%-0.07%
GBP-0.10%0.10%0.02%-0.03%-0.07%-0.08%0.02%
JPY-0.34%-0.09%-0.02%-0.20%-0.28%-0.24%-0.09%
CAD-0.07%0.13%0.03%0.20%-0.03%-0.02%0.05%
AUD-0.01%0.11%0.07%0.28%0.03%-0.01%0.09%
NZD-0.02%0.18%0.08%0.24%0.02%0.00%0.10%
CHF-0.12%0.07%-0.02%0.09%-0.05%-0.09%-0.10%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).


This section was published on August 25 at 5.38 GMT as a preview of the German IFO Survey release.

The German IFO Survey Overview

Germany’s IFO institute will publish its business survey for August on Monday at 0800 GMT. The headline IFO Business Climate Index is expected to stay unchanged at 88.6 this month.

Meanwhile, the Current Assessment sub-index is set to tick a tad higher to 86.7 in August from July’s 86.5.

The IFO Expectations Index, which firms’ projections for the next six months, is likely to decline to 90.2 in the reported month, as against a 90.7 figure printed in July.

How could the German IFO Survey affect EUR/USD?

EUR/USD is consolidating its pullback from three-week highs of 1.1743 in the lead up to the German IFO Survey. The pair pares previous gains as the US Dollar finds its feet, following Friday’s steep sell-off induced by US Federal Reserve (Fed) Chairman Jerome Powell’s dovish pivot during his appearance at the Jackson Hole Symposium.

An unexpected pick up in the German business morale could lift the Euro (EUR), reviving the EUR/USD uptrend, with the immediate resistance seen at three-week highs of 1.1743. The July 24 high of 1.1789 will be the next upside barrier en route to the 1.1800 level. To the downside, the 50-day Simple Moving Average (SMA) at 1.1651 will offer some comfort to buyers, below which the 1.1600 psychological level could be tested. Further down, the August 22 low of 1.1583 will be on the sellers’ radars.

German economy FAQs

The German economy has a significant impact on the Euro due to its status as the largest economy within the Eurozone. Germany's economic performance, its GDP, employment, and inflation, can greatly influence the overall stability and confidence in the Euro. As Germany's economy strengthens, it can bolster the Euro's value, while the opposite is true if it weakens. Overall, the German economy plays a crucial role in shaping the Euro's strength and perception in global markets.

Germany is the largest economy in the Eurozone and therefore an influential actor in the region. During the Eurozone sovereign debt crisis in 2009-12, Germany was pivotal in setting up various stability funds to bail out debtor countries. It took a leadership role in the implementation of the 'Fiscal Compact' following the crisis – a set of more stringent rules to manage member states’ finances and punish ‘debt sinners’. Germany spearheaded a culture of ‘Financial Stability’ and the German economic model has been widely used as a blueprint for economic growth by fellow Eurozone members.

Bunds are bonds issued by the German government. Like all bonds they pay holders a regular interest payment, or coupon, followed by the full value of the loan, or principal, at maturity. Because Germany has the largest economy in the Eurozone, Bunds are used as a benchmark for other European government bonds. Long-term Bunds are viewed as a solid, risk-free investment as they are backed by the full faith and credit of the German nation. For this reason they are treated as a safe-haven by investors – gaining in value in times of crisis, whilst falling during periods of prosperity.

German Bund Yields measure the annual return an investor can expect from holding German government bonds, or Bunds. Like other bonds, Bunds pay holders interest at regular intervals, called the ‘coupon’, followed by the full value of the bond at maturity. Whilst the coupon is fixed, the Yield varies as it takes into account changes in the bond's price, and it is therefore considered a more accurate reflection of return. A decline in the bund's price raises the coupon as a percentage of the loan, resulting in a higher Yield and vice versa for a rise. This explains why Bund Yields move inversely to prices.

The Bundesbank is the central bank of Germany. It plays a key role in implementing monetary policy within Germany, and central banks in the region more broadly. Its goal is price stability, or keeping inflation low and predictable. It is responsible for ensuring the smooth operation of payment systems in Germany and participates in the oversight of financial institutions. The Bundesbank has a reputation for being conservative, prioritizing the fight against inflation over economic growth. It has been influential in the setup and policy of the European Central Bank (ECB).

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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