German GfK Consumer Climate Indicator Jumps to -18.4 for August

On Wednesday, July 24, the German GfK Consumer Confidence Indicator garnered investor interest.

An improving consumer confidence environment could boost consumer spending. Higher consumer spending could fuel demand-driven inflation and challenge expectations of a September ECB rate cut.

German Consumer Confidence: Income Expectations Surge

The German GfK Consumer Climate Indicator increased from – 21.6 for July to -18.4 for August.

According to the July survey,

• Income Expectations surged by 11.5 points to 19.7 points, the highest level since October 2021.
• The Willingness to Save Indicator remained steady at 8.2 points.
• The Willingness to Buy Indicator increased by 4.6 points to -8.4 points.
• Economic Sentiment improved, rising 7.3 points to 9.8 points, returning to the May 2024 level.

Nuremberg Institute for Market Decisions (NIM) consumer expert Rolf Buerkl commented on the July survey, saying,

“The euphoria triggered by the European Football Championship in Germany in many parts of the population is also likely to play a role here. It remains to be seen whether this effect is sustainable or just a short-term flare-up. As quickly as this good mood has occurred, it can also disappear again. If the latter is the case, the road out of the low consumption will be long and demanding.”

ECB Rate Hike Plans Hinge on Wage Growth and Inflation

Sub-components of the Consumer Climate Indicator sent positive signals. Upward trends in Income Expectations and Willingness to Buy signal a pickup in consumer spending.

Rising consumer spending could fuel demand-driven inflation and delay the timing of an ECB rate cut.

However, the ECB could assess sentiment from the August survey before the September interest rate decision. A sharp pullback in the Willingness to Buy would support a September interest rate cut.

EUR/USD Response to German GfK Consumer Climate Survey

Before the German GfK Consumer Climate report on Wednesday, the EUR/USD climbed to a high of $1.08541 before falling to a low of $1.08416.

However, EUR/USD responded to the GfK Consumer Confidence report, falling from $1.08526 to a low of $1.08488.

On Wednesday, July 24, the EUR/USD was down 0.02% to $1.08512.

Up Next

Later in the session on Wednesday, Services PMI numbers for Germany will be in focus.

Economists forecast the German HCOB Services PMI to hold steady at 53.1 in July. Lower-than-expected numbers could support investor bets on a September ECB rate cut.

The services sector accounts for about 70% of the German economy and contributes to headline inflation.

However, investors should consider the employment and prices sub-components. The rate of job creation can influence wage growth, disposable income, and consumer spending. Consumer spending trends could affect demand-driven inflation.

The German HCOB Services PMI fell from 54.2 in May to a 3-month low of 53.1 in June. Employment rose at a less marked pace, with prices rising at the slowest rate since March 2021. Similar trends would support investor expectations of a September ECB rate cut.