The ZEW economic sentiment figures were quite shocking today. The German headline reading collapsed from 19.2 to just 3.6, far from expectations of 17.1. The same was true for the eurozone, with a reading of 9.3, down from 17.9. This dramatic deterioration came as institutional investors' sentiment around Germany's economic outlook, both for the next six months and for the current situation, declined.
Despite the negativity surrounding the region's economy, the euro is heading for gains that come with the momentum surrounding the possibility of a rapid half-point rate cut by the Federal Reserve, despite core inflation and producer prices accelerating at a faster-than-expected pace in the United States in August.
The continuation of the Fed's aggressive rate cut approach may reach a reduction of more than one percentage point by the end of this year, which is a significant development for the market.
This scenario has gained surprising momentum since the beginning of this week's trading and has become the most likely outcome with a probability of 69%, according to the CME FedWatch Tool.
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