The EUR/USD struggled on Tuesday morning as the US dollar strengthened amid gloomy risk sentiment while investors remained cautious ahead of the Eurozone GDP and inflation data. Closer to the data, the euro found renewed impetus as market sentiment improved slightly.
Monday’s GDP data from Germany was positive, but retail sales on Tuesday came in mixed, and weighed on the euro.
Germany’s Retails Sales
Data released on Tuesday by Destatis showed that Germany’s Retail Sales dropped 0.8% MoM in September compared to a 0.5% increase that was anticipated and August’s -1.2% reading. On an annual basis, Retail Sales in the Eurozone’s top economy dropped 4.3% in September versus a 2.3% decline seen in August.
Retail Sales data measures changes in the sales of the German retail sector in the short term. Changes measured in percentages reflect the rate of changes of these sales and are widely used as an indicator of consumer spending. When economic growth is positive and the reading increases, then the euro is expected to rise as the news is considered “bullish”, while a low reading is seen as negative, or bearish, for the common currency.
Germany’s Gross Domestic Product (GDP)
Earlier, on Monday, the EUR/GBP cross rose to its highest level since early May after the report of better-than-expected German Gross Domestic Product (GDP). On Tuesday, the EUR/GBP pair continued its winning streak for the third day, despite the weaker German Retail Sales.
On Monday, Germany reported that the Consumer Price Index (CPI) from October dropped to 3.8% YoY, lower than the 4% forecast and the previous figure of 4.5%. Gross Domestic Product (GDP) preliminary estimates from Q3 showed that the German economy contracted at an annualised rate of 0.3%, which is a smaller contraction than the 0.7% expected.
The upcoming data from the Eurozone on Tuesday, such as the Harmonized Index of Consumer Prices (HICP), Core HICP, and the seasonally adjusted Gross Domestic Product (GDP), will be closely watched by market participants. These indicators will provide important information about inflationary pressures and how well the Eurozone economy is doing. The European Central Bank (ECB) and Christine Lagarde have emphasised the economic challenges in the Eurozone, so if the data expected today comes in better than anticipated, then the euro will strengthen. The central bank hasn’t signalled for any further hikes, but Lagarde already stated that rates will remain restrictive as long as it is needed to fight stubborn inflation.
Additionally, if the various ECB speakers today continue to highlight the need for keeping rates higher and for longer, then the euro will find further support.