German retail sales declined by 0.8%, raising concerns about a potential economic recession.

Key Insights

• German retail sales experienced a 0.8% decline in July, deviating from economists' expectations of a 0.3% growth.
• The German GfK Consumer Climate Survey for August uncovered pessimistic attitudes regarding income, the economy, and unemployment.
• The continuous decrease in retail sales creates pressure for the European Central Bank (ECB) to implement a rate hike in September due to Eurozone inflation.

German Retail Sales Decline for Second Consecutive Month

Retail sales in Germany experienced a second consecutive monthly decline, attracting attention after higher-than-expected inflation data. The possibility of a September rate hike by the ECB relied on strong retail sales figures.

However, German retail sales slumped by 0.8% in July, following a 0.8% decrease in June, disappointing economists' forecast of a 0.3% increase. Year-on-year, retail sales were down 2.2% compared to -1.6% in June. Economists had predicted a 1.0% decline in year-on-year retail sales.

The decline in retail sales aligns with the negative sentiment expressed in the German GfK Consumer Climate Survey for August, which highlighted concerns regarding income, the economy, and unemployment. Pessimistic consumer sentiment towards income and unemployment could dampen consumer spending and alleviate inflationary pressures driven by demand.

Reaction in EUR/USD to German Retail Sales

Before the release of the retail sales figures, the EUR/USD pair initially rose to a pre-stat high of $1.09398 before declining to a low of $1.09168.

However, following the release of the retail sales figures, the EUR/USD pair rose to a post-stat high of $1.09190 before retracing to a low of $1.09134.

As of this morning, the EUR/USD pair experienced a 0.08% decrease, trading at $1.09144.

Upcoming Economic Events

The focus will shift to the French economy ahead of crucial Eurozone inflation figures. Inflation data, particularly if it surpasses expectations, may amplify pressure on the ECB.

Additionally, market participants should consider upcoming US economic indicators. The Core PCE Price Index and personal spending figures will impact sentiment towards the Federal Reserve (Fed). If the Core PCE Price Index demonstrates a more significant increase and US personal spending figures surpass expectations, it could reignite expectations of further Fed rate hikes.

Apart from economic indicators, attention will be on the ECB. The release of the ECB monetary policy meeting minutes and comments from ECB Executive Board members Isabel Schnabel and Luis de Guindos will garner interest.