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The euro advances by 0.2% against the US dollar this morning after two previous consecutive days of decline, thus regaining the level of 1.07169 at the peak of its gains.
The euro’s gains come despite a sharper-than-expected decline in sentiment according to the German Business Climate survey, to the lowest level in three months.
However, the return of the gap in US Treasury and German bund yields to narrow after two days of widening appears to provide support for the euro today.
Without that narrowing of the yield gap, today’s figures would not have supported the euro, which was hurt by negative data on economic activities in the Eurozone versus better-than-expected data from the US.
The Ifo Business Climate report for June spoke of a “deterioration” in business sentiment in Germany in light of the economy’s inability to overcome the stagnation it is experiencing. This decline was due to pressure from the retail sector, in which climate and future expectations deteriorated significantly, in addition to the manufacturing sector, which witnessed a decline in the business climate after three months of improvement. While sentiment was better across both the services and construction sectors.
Meanwhile, Friday’s PMI reports indicate that the gap in economic performance may continue to widen in favor of the US.
Recent surveys do not, in total, reflect improved confidence that the Eurozone is close to recover its growth path. On the other hand, sentiment about the future of activity outputs rises to the highest level in three months in the US, and all of this would also widen the yield gap in favor of US treasuries, which may cause more damage to the euro.
In the bond markets, 10-year Treasury bond yield is declining for the second day in a row, reaching 4.245%. In contrast, we are seeing the counterpart German yield holding steady near 2.40%. While the yield gap between these bonds is heading to decline today after two days of widening, reaching 1.844% in favor of US Treasuries.
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