EUR flows: EUR resilient despite weak IFO

IFO coming in weaker than expected and underperforming relative to the PMI data released yesterday.  The business climate index is now the weakest since the pandemic and excluding that the weakest since the GFC. The same is true of the current conditions index, with the expectations index only slightly better, having hit sub-GFC lows last year. While the significance of the IFO index has declined since the PMIs became more of a focus, and the Eurozone PMI was less weak than the German PMI yesterday, these numbers may nevertheless make some of the Bundesbank hawks less hawkish, with knock on effects on the ECB.

Nevertheless, there hasn’t been much impact on EUR/USD, which has been firm through the morning, and German yields are still higher on the day. This to some extent reflects the fact that front end yields are already quite low, pricing a 72% chance of a rate cut in April ,while the ECB is still pointing towards the first cut being in the summer. But it’s hard to have much enthusiasm for the EUR with data of this sort. EUR/JPY may be particularly vulnerable.