Euro Hits 2-Year Low as German Recession Fears Mount

German Industry Output

The Euro slid to a 2-year low on Friday as fears of a recession in the Eurozone were heightened by weak data releases.

The EUR/USD closed the week at its lowest level since May 2017 down 0.58% on the day, trading at 1.0991 having rallied late in the day after hitting an intraday low of 1.0965.

German Woes

Investors took the latest weak data from Germany as a sign that the world’s fourth-largest economy could be heading for a recession following a small increase in the number of unemployed. The German economy shrank 0.1% in Q2 and already the Bundesbank are predicting further contraction in the third quarter of the year. Successive contractions in the economy for two quarters fit the definition of a recession and all the signs are not looking good for Europe’s largest economy and the engine room to the European Union project.

This past week alone has seen German Retail sales heavily disappoint, posting -2.2% decrease versus market expectations for a decline of -1.2%. Meanwhile, business confidence fell for a fifth successive month with leading blue-chip companies including Henkel and Continental reducing their profit expectations for 2019. The latest slump in retail data suggests the decline in manufacturing has now spread to consumption. which rings alarm bells further for analysts.

Elsewhere in Europe, the downward trajectory seen over the last few months in Eurozone inflation continued in August, with the 1% recorded well below the ECB’s target at just under 2%. The worrying trend in inflation should prompt policymakers to act to boost growth and prices. However, at this stage what will be implemented is unknown with the European Union in a fragile economic state.

Italian Turmoil

In Italy, the Eurozone’s third-largest economy, ten-year bond yields dropped below 1% for the first time on record as the latest political crisis sees Prime Minister-designate Giuseppe Conte has until the end of the coming week to form a new ruling coalition.