German IFO Business Climate Index unexpectedly drops to 87.7 in September vs. 89.3 expected
- German IFO Business Climate Index surprises to the downside in September.
- EUR/USD extends losses below 1.1800 after German sentiment data.
The headline German IFO Business Climate Index unexpectedly fell to 87.7 in September from 89 in August. The data undermined the market expectations of 89.3.
Meanwhile, the Current Economic Assessment Index dropped to 85.7 during the same period from 86.4 in August, missing the estimated 86.5 reading.
The IFO Expectations Index, which indicates firms’ projections for the next six months, declined to 89.7 in September versus 91.6 previous and 92 expected.
Market reaction to the German IFO Survey
EUR/USD comes under fresh selling pressure following the downbeat German data to trade near 1.1780, 0.26% 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 Australian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.25% | 0.34% | 0.30% | 0.14% | -0.38% | 0.08% | 0.24% | |
| EUR | -0.25% | 0.08% | 0.05% | -0.12% | -0.63% | -0.17% | -0.02% | |
| GBP | -0.34% | -0.08% | -0.04% | -0.20% | -0.65% | -0.26% | -0.14% | |
| JPY | -0.30% | -0.05% | 0.04% | -0.17% | -0.66% | -0.30% | -0.08% | |
| CAD | -0.14% | 0.12% | 0.20% | 0.17% | -0.48% | -0.07% | 0.11% | |
| AUD | 0.38% | 0.63% | 0.65% | 0.66% | 0.48% | 0.46% | 0.63% | |
| NZD | -0.08% | 0.17% | 0.26% | 0.30% | 0.07% | -0.46% | 0.19% | |
| CHF | -0.24% | 0.02% | 0.14% | 0.08% | -0.11% | -0.63% | -0.19% |
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 below was published at 06:13 GMT as a preview of the German IFO Survey.
The German IFO Survey Overview
Germany’s IFO institute will publish its business survey for September on Wednesday at 08.00 GMT. The headline IFO Business Climate Index is expected to rise to 89.3 in September from the previous reading of 89.0.
Meanwhile, the Current Assessment sub-index is set to tick higher to 86.5 in September from August’s 86.4.
The IFO Expectations Index, which reflects firms’ projections for the next six months, is likely to rise to 92.0 in the reported month, as against a 91.6 figure printed in August.
How could the German IFO Survey affect EUR/USD?
EUR/USD trades on a negative note on the day in the lead up to the German IFO Business Survey. The major pair loses ground as the US Dollar strengthens after Federal Reserve (Fed) Chair Jerome Powell struck a cautious tone on further easing on Tuesday.
If data comes in better than expected, it could lift the Euro (EUR), with the first upside barrier seen at the September 16 high of 1.1878. The next resistance level emerges at the September 17 high of 1.1918, en route to the 1.1200 psychological level.
To the downside, the September 19 low of 1.1728 will offer some comfort to buyers. Extended losses could see a drop to the September 10 low of 1.1682. The next contention level is located at the September 5 low of 1.1648.
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).