An improving outlook for the Euro Zone and expectations that the Federal Reserve will reaffirm its ultra-easy monetary policy for the foreseeable future are deemed to support the Euro opposite the US dollar today. Positive German economic data and signs that the financial sector is on the mend are likely to continue boosting views that the worst of the debt crisis has passed.
Yesterday, GfK reported that German consumer confidence improved in January as a stable labor market and higher income expectations lifted moods. The GfK Consumer Climate index, based on a survey of about 2,000 individuals, rose from a revised 5.7 points to 5.8 points in January. According to the report a measure of economic expectations rose to -11.3 from -17.9 points while a gauge of income expectations climbed from 21.2 to a grade of 26 in January. Similarly, an index measuring willingness to buy jumped to 35.3 from 20.1 points.
In its monthly report published Monday, Germany’s Bundesbank said that the German economy is already showing signs of picking up after contracting in Q4 of 2012. The bank notes that business confidence has brightened, export prospects have improved, and the labor market remains stable. Indeed, recent data have suggested that Germany is benefiting from an improvement in the financial markets, likely allowing it to resume growth in the current quarter and avoid recession. Business and investor confidence both rose more than forecast this month while a gauge of activity in service industries climbed to a 19-month high. Unemployment is also holding steady at 6.9 percent, close to a two-decade low.
Across the Atlantic, the markets are expecting that the Federal Reserve will express its intention to continue with its unprecedented bond-buying program and keep rates exceptionally low as long as the Unemployment Rate remains high, potentially easing concerns about an early end to bond-buying. With the Fed deemed to stress its commitment to keep adding stimulus, enhanced appetites for risk are seen to carry the single currency higher, warranting a long position for the EUR/USD trades today.