Euro tests 0.8400 against British Pound as German business climate beats expectations

• The Euro ticks up acrross the board as the German IFO Business Climate Index jumps to three-year highs in October.
• The improvement in economic expectations has offset the deterioration in current economic conditions sentiment.
• The EUR/GBP pair has retraced previous losses to reach session highs at the 0.8400 area.

The Euro (EUR) extends gains against the British Pound on Monday, following the release of a better-than-expected German IFO Business Climate report. The EUR/GBP pair has reversed a previous pullback and is testing the 0.8400 level at the time of writing, posting a 0.3% recovery from the year-to-date lows near 0.8360 hit earlier on Friday.

German businesses' sentiment about the economy improved in October to a 90.2 reading, its best performance in more than three years, from 89.9 in September, against market expectations of a deterioration to 89.8. The assessment of the current economic conditions deteriorated to 88.8 from 89.5 in the previous month, but these figures were offset by an improvement in the expectations gauge, which rose to 91.6 from 90.4 in September.

Lower Oil prices and retreating French yields are buoying the Euro

The Euro is drawing support from a moderate reversal in Oil prices; The price of the Brent Oil barrel dropped below $110.00 on Monday, posting a 2% decline from Friday’s highs amid news reporting that Qatari mediators arrived in Tehran on Sunday to push another initiative to de-escalate tensions between the US and Iran.

Apart from that, Moody’s ratings agency kept France’s debt status unchanged at Aa3 despite the country’s ballooning debt and the social unrest, which has led to massive protests in most of the major cities this weekend. Moody’s decision has been celebrated by the market, which had anticipated a downgrade, and France’s 10-yearTreasury yields fell below the 5% level before trimming some gains through Monday’s European trading session.

Looking ahead, investors are likely to look from the sidelines, awaiting monetary policy decisions by the European Central Bank (ECB) and other major central banks this week. The Bank of England’s (BoE) time is next week, and markets are bracing for a quarter-point rate hike. This is highly likely to keep the Pound's dips limited this week.