The euro was able to record some recovery against a basket of major currencies. The euro against the US dollar (EUR/USD) reached the highest levels since last Friday, reaching the level of 1.08075 at approximately 10:30 am GMT.
Against British pound (EUR/GBP), the euro was able to reach the level of 0.85974 earlier today as well, which represents the highest levels since the first of this December.
The euro’s gains today came with more confidence of institutional investors in the region’s economy, which reached the highest levels in several months, in addition to German bond yields trying to consolidate a little after the noticeable decline at the beginning of today’s trading and the continued decline in US Treasury bond yields.
The December reading of the ZEW Economic Sentiment report was published today. Throughout the Eurozone, we witnessed the highest level of sentiment since February of this year with a reading of 23 points, which was significantly higher than expectations and the previous reading of 13.3 and 13.8, respectively.
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This reading also represents the third consecutive month of positive sentiment, after a five-month streak of negative sentiment.
As for Germany, economic sentiment rose more than expected as well, as the ZEW recorded a reading of 12.8, which represents the second month of optimistic sentiment after six previous months of pessimism, which is also was higher than expectations at 9.6.
Commenting on the results of the ZEW survey, the president of the research center, Achim Wambach, attributed the increasingly positive sentiment to further expectations about the possibility of the European Central Bank (ECB) cutting interest rates over the next year.
At the same time, Wambach noted that the share of those expecting further decline in inflation has declined.
These figures and expectations come ahead of the ECB’s announcement of its last interest rate decision this year. While the market expects that the current rates will be not be changed. However, after that meeting, the focus will shift to the next steps of the central bank for next year, that is, when and by how much it will cut the interest rate.
The euro’s gains today also come despite the noticeable decline in German ten-year bond yields with a sharp negative opening, which reached the 2.202% level at the maximum declines before recovering slightly and reaching the 2.239% level and returning to relatively calm trading.
However, what may seem to have provided more support for the euro is the continued decline in US Treasury yields extending from the beginning of the week.
The yield on ten-year Treasury bonds reached 4.191% at the maximum declines, which is slightly close to the lowest levels in three months.
Despite this lackluster performance of US Treasury yields, the gap between them and German and other European bonds in general is rising, which may constitute an obstacle for the euro to restore its previous levels.
The yield gap between US and German ten-year bonds exceeded 2% for the first time in more than a month yesterday – but today it has returned to 1.97%.
