On Wednesday, June 26, Consumer confidence numbers from Germany warranted investor attention. A deteriorating consumer confidence backdrop could signal downward trends in consumer spending. A pullback in consumer spending could dampen demand-driven inflation and raise expectations of an ECB rate cut.
Will the Willingness to Buy sub-component support a Q3 2024 ECB interest rate cut?
Rising Savings, Falling Spending: German Consumer Sentiment and the ECB’s Next Move
For July, the German GfK Consumer Climate Indicator unexpectedly declined from – 20.9 to -21.8. Economists predicted an increase to -18.9.
According to the June survey,
- Income Expectations fell by 4.3 points to 8.2 points, marking the first decline in five months.
- Willingness to Save increased by 3.2 points to 8.2 points.
- The Willingness to Buy declined by 0.7 points to -13.0 points.
- Consumer hopes for a speedy economic recovery over the next 12 months also waned for the first time in five months. The Economic Indicator slid by 7.3 points to 2.5 points.
Nuremberg Institute for Market Decisions (NIM) consumer expert Rolf Burkl commented on the unexpected decline, saying,
“The interruption of the recent upward trend in consumer sentiment shows that the path out of the consumer slump will be difficult and that setbacks can occur again and again. The slightly higher inflation rate in the country in May is causing more uncertainty among consumers, which is also reflected in the increase in the propensity to save.”
ECB Rate Hike Plans Hinged on Inflation
Sub-components of the Consumer Climate Indicator signaled a likely pullback in consumer spending. The upward trend in Willingness to Save and decline in Willingness to Buy could support a Q3 2024 ECB rate cut.
Nonetheless, consumer price trends across the broader Euro area remain the focal point for the ECB. Sticky Euro area inflation may delay an ECB rate cut until Q4 2024 and impact German consumer sentiment further.
EUR/USD Response to German GfK Consumer Climate Survey
Before the German GfK Consumer Climate report on Wednesday, the EUR/USD climbed to a high of $1.07179 before falling to a low of $1.07022.
However, in response to the GfK Consumer Confidence report, the EUR/USD rose to a high of $1.07055 before falling to a low of $1.07016.
On Wednesday, June 26, the EUR/USD was down 0.11% to $1.0720.
260624 EURUSD 3 Minute Chart
Up Next
Later in the session on Wednesday, ECB Chief Economist Philip Lane is on the calendar to speak. Views on the economic outlook, inflation, and the ECB interest rate trajectory require investor consideration.
This article was originally posted on FX Empire
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