The Euro hit yet another record high of 1.4392 against the greenback today, and it may simply be a matter of time before the currency jumps above the 1.4400 barrier. The currency’s gains came despite the weaker-than-expected GfK consumer sentiment survey, which dropped to a seven month low of 4.9.
After the IFO business confidence report for the same period fell to a 20-month low, the decline in consumer confidence is not very surprising, especially as energy and food prices have soared and left Europeans with less retained income for discretionary spending. In fact, the willingness to spend component of the report dropped to -12.9, its lowest reading since December of 2005, which could very well mark a turn in the consumer sector’s contribution to growth. There is little doubt that the European Central Bank will take note of the downside risks to growth that diminishing consumer and investor optimism present. As a result, the ECB is unlikely to raise interest rates before year end – barring a major increase in inflation figures – which provides far less fundamental support for the Euro at current levels.