German Ifo Business Climate Index Rises on Improving Economic Outlook

It was another busy day ahead on the European economic calendar. Finalized German and Italian inflation figures for January drew interest this morning, ahead of the German Ifo Business Climate Index numbers.

Inflation figures from Germany failed to deliver a surprise. Germany’s annual inflation rate accelerated from 8.6% to 8.7% in February, in line with prelim figures. According to Destatis, food prices rose by 20.2% year-on-year, with energy prices up 23.1%. Excluding food and energy, the inflation rate was 5.6%.

Italy’s annual inflation rate softened from 11.6% to 10.0% versus a prelim 10.1%.

However, German Ifo Business Climate Index numbers for February drew more interest. In February, the German private sector returned to growth according to prelim PMI numbers, thanks to a sharp pickup in service sector activity. The Business Climate Index needed to reflect improving business conditions.

The German Ifo Business Climate Index increased from 90.1 to 91.1 in February. Economists forecast an increase to 91.2. The Current Assessment Index unexpectedly fell from 94.1 to 93.9, while the Business Expectations Index increased from 86.4 to 88.5. Economists forecast increases to 95.0 and 88.3, respectively.

Today’s figures should have a muted impact on ECB monetary plans for March and forward guidance. An improving trend in business sentiment supports the near-term policy outlook.

After the latest PMI numbers and today’s Ifo numbers, investors need to monitor ECB member speeches. However, with no Executive board members on the calendar to speak, commentary with the media will need consideration. ECB members will need to discuss post-March moves to draw interest.

EUR/USD Price Action

Ahead of the Business Climate Index numbers, the EUR/USD rose to an early high of $1.06642 before falling to a low of $1.06435.

In response to the Ifo Business Climate Index numbers, the EUR/USD fell to a session low of $1.06356 before steadying.

At the time of writing, the EUR/USD was down 0.01% to $1.06450.

Next Up

It is a relatively quiet day on the US economic calendar. There are no US economic indicators for investors to consider today. The lack of stats will leave the Fed in the spotlight. Late in the US session, the FOMC meeting minutes will draw plenty of interest.

Following the latest round of US economic indicators and hawkish Fed chatter, the markets will dissect the minutes to gauge how far the Fed is willing to go. FOMC member chatter will also influence the dollar, with FOMC member Williams speaking late in the session.