Euro Gains on Dollar Despite German Business Sentiment Falling in Latest IFO Survey

Confidence in the German economy has taken a hit, after the influential Ifo Business Climate Index fell in August to 106.2 points, from the 108.3 points in the July survey, this comes after yesterday’s confirmation that GDP in Germany had fallen in the second quarter down to 0.4% from 0.7% in the first quarter.

The Ifo index showed that the manufacturing sector is bearing the burden over the lack optimism in the German economy, as the index score revealed that is had fallen further in the latest survey, continuing the trend from the middle of last year.

Industrial companies were less than satisfied with their current business situation, with expectations falling well below their long term average, this was especially due to the lack of volume of fresh orders, the business climate index fell in nearly all industry branches, with the chemical and electrical industries clearly suffering the most.

Retail also experienced a significant downturn, in a sector that has endured a turbulent time in the survey during the course of this year, the decline was mainly attributed in the index to a decline in food and beverages, while in wholesaling the distributors were not as satisfied with their current situation as they were in July, and their expectations showed that they were not positive about the future

The construction industry throughout this year has been the main source of confidence in the economy, although in August the level of assurance about the sector’s direction took a slight setback as levels of optimism weakened, though the sector feels it has a far more bright future compared to the other major parts of the economy.

In France, the latest business climate indicator is virtually stable in August compared to July, with the official figures body the INSEE revealing that the current index score is 101, down just a single point month on month.

As in Germany, manufacturing was the most damaged sector in the survey, suffering a two point fall as the index dropped from 103 to 101 for this month, industry order books are thought to have deteriorated as a whole, but export ones are stable, fewer industrialists also consider that finished goods inventories are above the normal rate for August, although the manufacturing sector is still slightly above its long term average of 100.

Building construction and services remained stable in the latest survey with index ratings of 95 and 101 respectively, while retail trade fell by one point to 103, in their GDP figures for the second quarter this year, France plummeted sharply to zero from 0.7% that was recorded for the first three months of the year.

So far CET, the euro has reacted positively to the Ifo results, and has leapt up to buying $1.129 from beginning the day purchasing 1.126, after being one of the biggest underperformers yesterday, in their daily review LMAX Exchange said that this left many traders scratching their heads, with many chalking up previous price action to thinner August trade.

This is especially in view of the much anticipated speech by Federal Reserve Chair Janet Yellen in Wyoming tomorrow, where many analysts believe that she will prepare the ground for an eventual rate rise.