The Euro to Pound Sterling (EUR/GBP) and Euro to US Dollar (EUR/USD) exchange rates fell on Tuesday after a report by the ZEW Centre for Economic Research showed that economic sentiment in Germany and the wider Eurozone plummeted in August.
ZEW reported that its index for German economic sentiment plummeted from a reading of 27.1 in July to just 8.6 this month, a fall of 18 points.
The reading was the weakest seen in 20 months and was far below economist expectations for a figure of 18.2.
The impact of EU sanctions against Russia and the Russian response by banning foodstuffs from the EU and other Western countries has been particularly harmful to Germany.
Outside of the EU, Russia is Germany’s largest trading partner.
The report adds to expectations that data due on Thursday will show that the Eurozones largest economy stagnated.
‘Augusts’ drop in the German ZEW economic sentiment indicator is another worrying sign, particularly as perceptions of current conditions are now weakening sharply too….The decline must relate largely to fears about the effects of the Ukraine crisis, which could prove short-lived given the recent partial recovery in German equity prices. However, the further confidence falls, the greater the risks to actual economic activity. Indeed, note that the ZEW current conditions index fell for the second month running to +44.3 – its lowest level since January,’ said Jennifer Mckeown, Senior European Economist at Capital Economics.
Some economists are now revising their forecasts for the region’s top economy following the latest data releases.
The wider Eurozone also saw sentiment tumble as the ZEW report showed a decline in sentiment from Julys reading of 48.1 to 23.7 in August.
The impacts of the Ukrainian crisis and overall weakness in the Eurozone economy were the biggest cause for the declines.
All of Europe has been affected by these tensions as well as by the stalling of the German economy. The Italian economy appears to be slipping into recession.
The French economy has failed to achieve sustainable growth and Spain, which showed signs of improvement, still saw industrial production decline by -0.8% in June.
As a result, the economy is likely to show further signs of a slowdown throughout the rest of the year.
‘The German ZEW survey suggests the euro-area economy will continue to slow through the first half of next year,” said Bloomberg economists David Powell and Niraj Shah. “That will provide ammunition for the proponents of quantitative easing at the European Central Bank.’
Sterling could make further gains against the Euro on Wednesday if the latest unemployment, inflation and wage growth data out of the UK come in strongly.
Euro Exchange Rate News:
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