2.0% decline in Germany’s September retail sales vs. 0.4% expected

A 2.0% month-on-month (MoM) decline was recorded in German Retail Sales in September. Official figures from Destatis showed that this key consumer spending indicator unexpectedly contracted, against expectations for a 0.4% increase. August’s Retail Sales growth was revised to 1.2% from 1.3%.

Euro: Key Questions Answered

The Euro at a Glance

Used by the 20 European Union countries within the Eurozone, the Euro ranks as the world’s second most traded currency after the US Dollar. Its share of global foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. Next are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The ECB’s Role in Euro Movements

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is its central mandate, through either curbing inflation or supporting growth. Interest rate increases and cuts are its main policy instruments. The Euro typically benefits when rates are relatively high or expected to rise; the reverse also applies. Monetary policy is decided at eight meetings a year by the ECB Governing Council. The decision-makers comprise the heads of Eurozone national banks and six permanent members, among them ECB President Christine Lagarde.

Inflation’s Influence on the Euro

Measured by the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic gauge for the Euro. A stronger-than-expected rise in inflation, particularly above the ECB’s 2% target, requires the central bank to increase interest rates to regain control of price pressures. When Eurozone interest rates are relatively high compared with those elsewhere, the region becomes a more attractive destination for global investment. This generally supports the Euro.

Economic Indicators and Euro Performance

The Euro can respond to economic releases because they reveal the economy’s condition. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys can each shape the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak economic figures, by contrast, are likely to weigh on the Euro. Particular weight is given to releases from Germany, France, Italy and Spain. These four largest euro-area economies together represent 75% of the Eurozone’s economy.

Trade Balance and Euro Valuation

The Trade Balance is another important release for the Euro, showing the gap between a country’s export earnings and its import spending during a specified period. Strong overseas demand for a country’s exports generates additional demand for its currency as foreign buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.

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