German business sentiment improved, but this has little effect on the euro

Ifo’s German business climate index exceeded expectations in May, which helped the euro trade Monday. The indicator of business conditions increased from 74.2 to 79.5 (78.3 expected). The growth was due to an increase in the expectation’s component from 69.4 to 80.1. As the markets try to look forward, their attention is entirely focused on the “glimmer of hope” regarding business prospects in connection with the easing restrictions.

In the previous recession, this indicator reached its bottom in December 2008, had begun to add long before the contours of economic collapse became apparent in the German economy in 2009. It is also essential to understand that Ifo reversal rarely reverses the euro against the dollar.

Instead, we can talk about the reverse relationship: the weaker euro exchange rate encourages the optimism of export-oriented Germany. Thus, it is not easy to rely on current data as a signal of further strengthening of the single currency.

The FxPro Analyst Team