On April 28, German consumer confidence fell to its lowest level since February 2023, as the Middle East conflict, against a backdrop of surging energy prices, dampened income expectations and hurt hopes for a moderate economic recovery this year. The GfK consumer confidence index for May dropped to -33.3 from -28.1 in April, marking the largest decline since October 2022. This decline followed a slide in the closely watched Ifo business climate index, which data showed on Friday had fallen to a near six-year low in April. Against a backdrop of widespread weakness in manufacturing, services, and construction, businesses have grown increasingly pessimistic about their prospects for the coming months. A sense of a dimmer future outlook was also evident among the approximately 2,000 consumers surveyed. The report indicated that the measure for income expectations plunged by 18.1 points to -24.4, reflecting pressure from resurgent inflation. The survey also showed a weakening in the indicator for consumer buying willingness. Germans' propensity to save declined slightly but remained at a relatively high level. Meanwhile, consumer expectations for the economy fell to levels close to those seen in April 2022.
Furthermore, markets widely expect the Bank of England's Monetary Policy Committee (MPC) to keep borrowing costs unchanged at 3.75% on Thursday, awaiting greater clarity on the Middle East conflict. However, as the Iran war approaches its third month, committee members might adopt innovative communication strategies to demonstrate how they would respond to prolonged market turmoil. Officials believe that, given the damage to Middle Eastern infrastructure, futures signals pointing to a significant easing of energy price pressures might be overly optimistic. While these price levels would support the core forecasts of the Bank of England, the central bank may acknowledge the possibility of more negative outcomes, which would have damaging effects on economic growth and inflation.
Key data to watch today include the US S&P/Case-Shiller 20-City Composite Home Price Index (NSA) Year-over-Year for February and the US Conference Board Consumer Confidence Index for April.
USD Index The US Dollar Index experienced a slight decline yesterday, closing marginally lower after fluctuating throughout the day. The index is currently trading around 98.50. Persistent expectations for Federal Reserve interest rate cuts continued to weigh on the currency. Additionally, optimistic expectations regarding Middle East negotiations reduced demand for the US dollar as a safe-haven asset, further pressuring the index. Resistance is seen near 99.00 today, with support around 98.00.
EUR/USD The euro traded within a narrow range yesterday, ending the day with modest gains. The pair is currently trading around 1.1710. Technical buying interest near the 1.1700 level provided some support. A softer US dollar, pressured by renewed Fed rate cut expectations and diminished safe-haven demand, also contributed to the euro's strength. However, weak economic data from Germany released during the session limited the pair's upward momentum. Resistance is anticipated near 1.1800 today, while support lies around 1.1600.
GBP/USD The British pound advanced yesterday, closing slightly higher. The pair is currently trading around 1.3530. The primary driver was a weaker US dollar, which softened due to revived Fed rate cut expectations and an easing of Middle East tensions that reduced its safe-haven appeal. Furthermore, expectations that the upcoming Bank of England rate decision might convey a hawkish tone also provided some underlying support for the pound. Resistance is viewed near 1.3600 today, with support around 1.3450.
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