The euro declined against the greenback yesterday following reports of an unexpected contraction of the German economy in the first quarter of 2023. The euro dollar’s decline was also fueled by the impressive US economic (GDP, unemployment claims) data. Overall, the EUR/USD pair declined from a high of 1.0757 to a low of 1.0708 in the past 24 hours.
According to the final data published by Destatis, the German economy contracted by 0.30% q-o-q in the March 2023 quarter following a 0.50% GDP decline in the previous quarter. The preliminary estimates had pegged no change in the first quarter. Economists did not anticipate any change in the preliminary reading.
The latest figure represents the second successive quarter of economic contraction, pushing Europe’s economic powerhouse into a recession. The decline in Germany’s GDP was fueled by high price increases and a rise in interest rates.
Household consumption fell by 1.20% as consumers cut spending on food and beverages, furnishings, clothing, and footwear. The termination of incentives for hybrids and the reduction in grants for electric vehicles also had a negative impact on vehicle sales. Government spending fell by 4.90%. However, fixed investment, fueled by construction, grew by 3%.
The German GfK consumer climate index improved to -24.20 for June from -25.80 in May but missed forecasts of -24. The reported reading reflects the highest level since April 2022. The improvement in the index reading was caused by a decline in the inclination to save.
According to the second estimate published by the Bureau of Economic Analysis, the US economy grew by 1.30% q-o-q in the March 2023 quarter following a 2.60% GDP increase in the previous quarter and a few notches higher than the advance estimate of 1.10% economic expansion.
On an annual basis, the US GDP rose by 5.40% (or $348.30 billion) in the March 2023 quarter to $26.49 trillion, up $20.40 billion from the prior estimate.
Personal income grew by $251.30 billion in the first quarter, down $27.60 billion from the previous estimate. Furthermore, disposable personal income rose by 12.30% (or $561.60 billion) in the March 2023 quarter, down $9.60 billion from the earlier estimate.
Personal savings stood at $829.20 billion in the first quarter, down $6.10 billion from the earlier estimate.
According to the Department of Labor, the US first-time unemployment claims increased slightly to 229,000 in the week ended May 20 from 225,000 (downwardly amended from 242,000) in the previous week and pleased economists who were expecting a sharp rise in the jobless claims to 249,000. The four-week moving average was 231,750, unaltered from the earlier week’s average (downwardly revised from 244,250).
The unexpectedly weak German GDP data and the solid US economic data is expected to keep the EUR/USD pair slightly bearish in the days ahead.
The historical price chart indicates that the EUR/USD pair is declining after facing resistance at 1.0830. The next support is anticipated only near 1.0650. Additionally, the EUR/USD is trading below its 50-day moving average while the stochastic indicator is in the bearish zone. Therefore, we anticipate the EUR/USD pair to remain in a downtrend in the days ahead.
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