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Decrease of 1.6% in German Retail Sales Recorded for December

Decrease of 1.6% in German Retail Sales Recorded for December

Unexpected decrease in German retail sales sends further recession indicators, potentially influencing the Eurozone economy.

Highlights

  •  In December, there was an unexpected 1.6% decline in German retail sales.
  • The decrease in retail sales aligns with forecasts of a potential German recession in the first quarter, intensifying speculations about a rate cut by the ECB in April.
  • Coming up, there will be updates on German inflation figures, US labor market statistics, and the Federal Reserve's interest rate decision.

The spotlight is on the German economy on Wednesday, with early attention in the European session on German retail sales.  

German Retail Sales Experience Unforeseen 1.6% Decrease in December

In December, German retail sales witnessed an unexpected 1.6% month-on-month downturn. This followed a 2.4% month-on-month drop in November. Economic experts had anticipated a 0.7% month-on-month increase in retail sales for December.  

ECB Influence Assessment

The ECB maintained interest rates at the previous level last week, with ECB President Lagarde abstaining from specifying a potential interest rate cut timeline. Instead, attention was directed towards wage growth, emphasizing apprehensions regarding consumer spending and inflation trends driven by demand.

The data on retail sales in Germany indicates a decline in demand-driven inflation, further reinforcing predictions of a potential Q1 recession and increasing speculation about an ECB rate cut in April. German private consumption, which accounts for over 50% of the economy, plays a significant role in this scenario.  

EUR/USD Movement Following German Retail Sales Data

Preceding the release of German retail sales figures, the EUR/USD surged to a peak of $1.08482 before dropping to a minimum of $1.08158. Subsequently, in reaction to the data, the EUR/USD declined to a low of $1.08148 before rebounding to a high of $1.08206. By Wednesday, the EUR/USD had decreased by 0.23% to $1.08203.  

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Upcoming Economic Indicators and Market Focus

The upcoming release of German unemployment and inflation data is set to capture investors' interest. If inflation figures turn out to be weaker than anticipated, it could strengthen speculations about an ECB rate cut in April. Forecasts indicate a potential decrease in the German annual inflation rate from 3.7% to 3.0% in January.

Conversely, a tightening labor market could bolster wage growth, which is a concern for the ECB. Economists are predicting that the German unemployment rate will hold steady at 5.9% in January.

Additionally, attention will be directed towards the release of the ADP employment change numbers for January and Q4 employment costs from the US. Improvement in labor market conditions and higher-than-expected wage growth data could alleviate expectations of a Fed rate cut in March.

While these statistics will garner investor interest, the primary events of the session will revolve around the Fed interest rate decision, rate statement, and press conference. Economists are anticipating that the Fed will retain interest rates at 5.50%, shifting the focus towards the rate statement and press conference.  

 

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