German Retail Sales Slide by 1.6% in December

Highlights

• German retail sales unexpectedly fall by 1.6% in December.
• The fall in retail sales supports expectations of a Q1 German recession and fuels bets on an April ECB rate cut.
• Up next, German inflation numbers, US labor market data, and the Fed interest rate decision.

On Wednesday, the German economy is under the spotlight. Early in the European session, German retail sales were in focus.

German Retail Sales

German retail sales unexpectedly declined by 1.6% month-on-month in December. In November, retail sales slid by 2.4% month-on-month. Economists forecast retail sales to rise by 0.7% in December month-on-month.

ECB Impact Analysis

Last week, the ECB left interest rates unchanged. However, ECB President Lagarde refrained from indicating when the ECB will cut interest rates. Instead, the ECB President focused on wage growth. The focus on wage growth highlighted concerns about consumer spending and demand-driven inflation trends.

The retail sales figures from Germany signal a weakening demand-driven inflation environment. Significantly, the slump in retail sales supports expectations of a Q1 recession and bets on an April ECB rate cut. German private consumption contributes over 50% to the economy.

EUR/USD Reaction to German Retail Sales

Before the German retail sales figures, the EUR/USD rose to a high of $1.08482 before falling to a low of $1.08158.

However, in response to the data, the EUR/USD fell to a low of $1.08148 before rising to a high of $1.08206.

On Wednesday, the EUR/USD was down 0.23% to $1.08203.

Up Next

German unemployment and inflation figures warrant investor attention. Softer-than-expected inflation numbers could fuel bets on an April ECB rate cut. Economists forecast the German annual inflation rate to soften from 3.7% to 3.0% in January.

However, tighter labor market conditions could support wage growth, an ECB bugbear. Economists expect the German unemployment rate to remain at 5.9% in January.

From the US, ADP employment change numbers for January and Q4 employment costs also need consideration. Tighter labor market conditions and better-than expected wage growth figures could ease bets on a March Fed rate cut.

The stats will draw investor attention. However, the Fed interest rate decision, rate statement, and press conference will be the main events of the session. Economists expect the Fed to leave interest rates at 5.50%, placing the focus on the rate statement and press conference.