Euro is under more pressure in response to German ZEW Index's decline

Declining German investor confidence in the ZEW index has the potential to make the ECB even more dovish. thus making EUR/USD depressed.

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The euro weakened against the US dollar despite rising risk appetite. Single Currency seems to consider the potential for monetary tightening of the Fed versus the ECB rather than market optimism about the minimal impact of the Omicron variant. At press time in late Tuesday (07/December) trading session, EUR/USD was down 0.31% to 1.1250.

German ZEW Index worsens, ECB to remain Dovish

Eurozone economic data released this afternoon confirmed a decline, although not as low as expected. Germany's ZEW index fell from 31.7 to 29.9 in December, better than expectations for a slump of 25.1. Nevertheless, this decline still shows that investor sentiment is deteriorating, partly because of the threat of a fourth wave of COVID-19 infections.

According to Achim Wambach as president director of ZEW, the German economy is clearly still under pressure from the high number of COVID-19 infections. The bottleneck effect in supply also weighed on production and retail trade, thus affecting economic activity.

"The decline in economic expectations shows that hopes for stronger growth in the next six months are starting to fade. Income expectations are the most dismal in the import and consumer-oriented sectors," added Wambach.

Weak economic data will further reduce the chances of the ECB to tighten monetary policy. In her speech at the Banking Congress last November 19, ECB President Christine Lagarde emphasized that the European central bank will not raise interest rates at least until the end of 2022. She said that the ECB should not rush to implement premature monetary tightening even though the rise in inflation is above reasonable.

On the other hand, US economic data continues to support the Fed's monetary tightening, particularly the acceleration of tapering. Tonight, the US trade balance deficit is reported to have narrowed in line with rising exports. The Dollar Index also strengthened 0.2% and put further pressure on the Euro.