EUR/USD: Trading the German GfK Consumer Confidence Survey

The GfK consumer confidence survey failed to meet expectations in April as the index slipped lower for the first time in seven months, and households may turn increasingly pessimistic towards the economy as they face a weakening labor market paired with tightening credit conditions. The confidence index slipped to 2.4 from a revised reading of 2.5 in March, while the gauge for economic expectations fell to -32.8 from -27.9 in the previous month, and the data foreshadows a weakening outlook for private-consumption as the region faces a deepening recession. Meanwhile, after lowering the benchmark interest rate by 25bp to 1.25% in March, ECB President Trichet signaled that borrowing costs could fall lower as growth and inflation falter however, as the central bank head remains reluctant to overshoot the interest rate, policymakers may place a floor on rates and adopt unconventional measures to manage policy going forward.

Consumer sentiment in Germany unexpectedly improved for the sixth consecutive month in March as the GfK survey increased to 2.6 from a revised reading of 2.3 in the previous month however, households may turn increasingly pessimistic towards the economy as the region faces its worst economic downturn in over half a century. Deteriorating fundamentals paired with tightening credit conditions continues to foreshadow a weakening outlook for Europe’s largest economy but nevertheless, as policymakers continue to take unprecedented steps to steer the nation out of a recession, the extraordinary efforts has helped to spark hopes for a recovery later this year. Meanwhile, as the IMF expects economic activity in Germany to contract 2.5% in 2009, the outlook for growth and inflation remains bleak, and the European Central Bank is widely expected to ease policy further next month in an effort to jump-start the economy.