Germany’s Retail Sales: September decline of 2.0% vs. 0.4% expected

Consumer spending in Germany delivered a downside surprise in September, with Retail Sales, a key gauge of household expenditure, falling rather than rising as expected. Official figures from Destatis showed a 2.0% month-on-month (MoM) decline, against expectations of a 0.4% increase. August’s Retail Sales reading stood at 1.2%, revised from 1.3%.

Euro: Key Questions Answered

Which countries use the Euro, and how widely is it traded?

Used by the 20 European Union countries within the Eurozone, the Euro ranks behind only the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. With an estimated 30% share of all transactions, EUR/USD is the world’s most actively traded currency pair. It is followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What role does the ECB play in shaping the Euro’s value?

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

Why do inflation figures matter for the Euro?

Measured through the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. An increase in inflation beyond expectations, particularly above the ECB’s 2% target, requires the central bank to raise interest rates to bring price pressures under control. When interest rates are relatively higher than those in other economies, the Euro usually gains support because the region becomes a more attractive destination for global investors’ funds.

Which economic indicators can move the Euro?

By indicating the economy’s health, data releases can influence the Euro’s performance. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys are among the indicators that can determine the single currency’s direction. Economic strength supports the Euro by drawing in more foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak economic readings, by contrast, are likely to weigh on the Euro. Figures from Germany, France, Italy and Spain carry particular importance. Together, these four largest euro area economies represent 75% of the Eurozone’s economy.

Why is the Trade Balance important for the Euro?

The Trade Balance is another closely watched release for the Euro, capturing the gap between a country’s export earnings and its spending on imports during a specified period. Strong foreign demand for a country’s exports creates additional demand for its currency as overseas 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.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights