German ZEW Economic Sentiment Index leaps to 31.7 in March vs. 20.5 expected

Source Fxstreet
  • Germany’s ZEW Economic Sentiment Index jumps to 31.7 in March.
  • EUR/USD remains uninspired by the upbeat German and Eurozone ZEW surveys.

The headline German ZEW Economic Sentiment Index jumped from 19.9 in February to 31.7 in March. The market forecast a reading of 20.5.

However, the Current Situation Index improved from -81.7 to -80.5 in the reported month, beating estimates of -82.0.

The Eurozone ZEW Economic Sentiment Index came in at 33.5 in the same period, notably higher than the February reading of 25.0. The data surpassed the market expectations of 25.4.

Key points

Economic expectations for Germany are significantly improving.

At the same time, more than 80% of those surveyed anticipate that the ECB will cut interest rates in the next six months.

This could explain the more optimistic outlook for the German construction industry.

German export sector benefits from the increased economic expectations for China as well as the expected depreciation of the dollar against the Euro.

Assessment of the economic situation remains at a very low level.

This development somewhat diminishes the increased economic expectations.

Market reaction

The EUR/USD pair is languishing near intraday lows near 1.0840, despite upbeat ZEW surveys, down 0.28% on the day.

 

Euro FAQs

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

 

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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