Euro trims daily losses as German preliminary GDP beats expectations

• EUR/USD picks up to 1.1450 following the German GDP release but remains below Wednesday's highs, in the 1.1475 area.
• German Economy grew above expectations in Q2, boosting hopes about a strong Eurozone GDP report.
• Flaring tensions in the Middle East and higher Oil prices are likely to offset positive Eurozone data.

The Euro (EUR) nudges down against the US Dollar (USD) on Wednesday, despite a mild uptick following stronger-than-expected German Gross Domestic Product (GDP) data. The EUR/USD trades at 1.1450, below Wednesday's peak of 1.1475, as the sourer market mood amid flaring tensions in the Middle East has offset the positive impact of investors’ disappointment following the Federal Reserve’s (Fed) decision on Wednesday. 

Preliminary data released by the German Federal Statistics Office showed that the German economy grew at a 0.2% pace in the second quarter of the year. This is a more moderate growth than the 0.3% seen in the first quarter, but stronger than the 0.1% expected by the market. Year-on-year, economic growth accelerated to 0.9% from 0.4% in the first quarter, also above the 0.6% market consensus. 

The focus is now on the Eurozone preliminary GDP, due later on the day, which is expected to show that the region’s economy grew 0.2% in the second quarter, reversing the first quarter’s 0.2% decline. Year-over-year, the region’s GDP is seen accelerating to a 0.5% growth from the 0.3% rise witnessed in the first three months of the year.

Geopolitical tensions weigh on the Euro

The Euro, however, is pulling back on Wednesday, weighed by moderate risk aversion as the US and Iran resumed hostilities after a three-day truce, crushing investors’ hopes of a negotiated outcome and sending Oil prices higher. 

Geopolitical tensions have provided some support to the Dollar, to retrace some of the ground lost on Wednesday, following the Federal Open Market Committee’s (FOMC) meeting. The Fed left interest rates unchanged, amid a split committee, and Chairman Kevin Warsh refused to give any forward guidance, raising concerns that the central bank might be failing to do its job and reviving doubts about the central bank’s independence.