Euro to Dollar Falls to 1.10 after Survey Shows Widespread Scepticism Amongst German Businesses

The results of a survey which questions 7,000 businesses in Germany about their view of the economy has shown a dip in mood, increasing pressure on the Central Bank to use necessary force.

The EUR/USD lost ground in the wake of disappointing business data from the IFO institute which published its latest Business Sentiment survey on Tuesday.

The German data showed a sharp drop in confidence to a 14-month low as a result of concerns about the outlook for the global economy, and its impact on the euro-zone.

Both the Business Climate and the forward-looking Expectations subcomponents of the survey came out well below expectations, falling from 107.3 to 105.7 in the former and 102.4 to 98.8 in the later.

The Current Assessment meanwhile showed a rise to 122.9 from 112.5, beating expectations of a fall to 112.00.

Whilst reactions from the markets were muted in the seconds following the release of the survey results, the euro weakened over 30 points in the half hour following the release, trading down from 1.1030 to the key 1.1000 level, however, it was not clear how much of the sell-off was directly as a response to the IFO data.

The IFO sentiment data came after yesterday’s poor PMI data, further solidifying expectations that the ECB will respond aggressively at their March meeting.

Glass Half Empty

According to Hans-Werner-Sinn, director of the IFO institute, the survey results showed widespread pessimism amongst German businesses, particularly about the future:

“The majority of companies were pessimistic about their business outlook for the first time in over six months.

Nevertheless, assessments of the current situation were more positive:

“Assessments of the current business situation, by contrast, were slightly better than last month.

Sentiment amongst manufacturers had particularly suffered:

“German businesses expressed growing concern, especially in manufacturing.”

The one thriving area of the economy according to the survey report, appeared to be Construction:

“Construction was the only sector in which the business climate index rose.

“This was due to assessments of the current business situation, which hit a new record high.

“Business expectations, on the other hand, deteriorated for the fourth month in succession.”

ECB to Launch Stronger Stimulus

Western Union commented that the data was more evidence of the German economy’s “weakening prospects”:

“Evidence of weakening prospects for the mighty German economy weighed on the single currency, knocking it to three-week and three-year lows against the dollar and yen, respectively.

“Germany’s all-important Ifo survey fell to 105.7 in February, a full point south of forecast, and the weakest since December 2014.

“The data depicted a weakening outlook for Germany, increasing calls for the ECB to launch stronger stimulus next month.”

Good Call

Helaba Economics successfully predicted the soft IFO data, saying in a note this morning before the release that sentiment data overall had been trading lower, so IFO would probably follow suit:

“There is still a certain degree of economic scepticism amongst market participants.

“The sentiment indicators published for February so far have largely shown weaker results.

“The preliminary estimate of the purchasing managers' indices for the manufacturing sector is particularly worth noting, as it fell from 52.3 points to 50.2.

“The indications from the ZEW and Sentix components are also negative.

“Above all, the fact that both the economic expectations and the current situation assessments have softened suggests caution for today's Ifo business climate index.”

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