EUR: German business confidence slides and Draghi strikes dovish tone

After a strong performance throughout 2017, the euro made losses against the US dollar and sterling yesterday. The weakened performance came following Sunday’s German election which, as expected, resulted in a victory for Merkel’s Christian Democratic Union party. However, the increased support for far-right party Alternative für Deutschland has led to concerns that there will be some implications for the eurozone. Merkel will certainly have to form a coalition and she might have to revisit her immigration policies following the result.

There was some unexpected poor economic data from Germany too, as business confidence came in worse than expected. The IFO institute’s monthly survey of investor moral fell to 115.2 from 115.9 against an expectation of 116.0. German businesses are less optimistic about business conditions than they have been of late, although there is no real cause for alarm just yet.

European Central Bank President Mario Draghi gave a speech yesterday in which he stated that the European economy still needs the Central Bank’s stimulus package. In addition, he added that it was too soon to discuss what would be decided at the October meeting. It will be fascinating to see whether the ECB decides to taper its quantitative easing next month.

The key releases for this week are the German consumer confidence and inflation rate on Thursday, followed by the business confidence report for the eurozone. On Friday we’ll get the unemployment numbers from Germany.