The Euro dropped back below 1.3400 during European trading after the ZEW survey reflected surprisingly dour economic outlooks amongst investors. Both the German and Euro-zone ZEW figures unexpectedly fell back to 20.3 and 19.0, respectively, as the European Central Bank?s overtly hawkish stance has started to take its toll on optimism.
Nevertheless, the euro made a comeback over the course of the US session as the readings still hold at encouraging levels and German sentiment regarding current conditions actually reached another record high of 88.7. Overall, the status of Euro-zone expansion appears to be keeping pace, as the labor market remains tight, exports continue to thrive, and consumption grows. However, these factors combined with inflation holding at 1.9 percent, just below the ECB?s ceiling of 2.0 percent, may not be enough to initiate policy action within the next few months. Given the fairly aggressive series of rate hikes that the ECB has enacted over the past year, the end of the tightening cycle may be nearing, especially if price pressures ease in line with the central bank?s outlook.