Euro continues to recover

The euro continues its gains today against the US dollar by 0.18% at 6:20 a.m. GMT and records its highest levels for this week, reaching the level of 1.07194.

The euro was supported by a further decline in consumer pessimism in Germany for the third month in a row, with the GfK Consumer Climate Index reading beating expectations, supported by rising income expectations, in addition to the continued rise in German bund yield to their highest levels this year.

Positive consumer climate figures, in addition to the previous series of data this week, help encourage monetary policy makers at the European Central Bank (ECB) to be patient with interest rate cuts, with positive signals from the region’s largest economies, whose consumers still enjoy strong purchasing power, as indicated by the GfK survey as well.

This narrative supported the euro through a rise in Eurozone bond yields and a narrowing of the yield gap with US Treasury bonds, with markets strengthening their hypothesis about the possibility of achieving no more than two interest rate cuts this year by the ECB.

As for today’s numbers, the GfK Consumer Climate Index reading came in at -24.2 in April, which represents the best levels in two years, in addition to the reading in May of last year.

While income expectations have risen as wages have increased and inflation has fallen. While the survey indicated that greater willingness to save has hindered further recovery in consumer sentiment.

The high levels of real interest rates in Germany, which have reached their highest levels since 2020 and since the beginning of 2021 for ten-year real bond yields, may also contribute to enhancing the willingness to save.

Meanwhile, German ten-year bond yields reached their highest levels this year at 2.599%, and the yield gap with US Treasury bonds for the same term declined to 2.049%, which is the lowest in two weeks.