Euro remains subdued following German ZEW Survey data

The Euro (EUR) remained subdued on Tuesday following the release of German ZEW Survey data, which indicated a slight improvement in economic sentiment. The ZEW Survey - Current Situation for Germany came in at -61.1 in August, surpassing the expected -68.8 and July's -77.6 reading. Meanwhile, Economic Sentiment in Germany rose to 34.2 in August, beating estimates of 30.0 and the July figure of 26.3.

The Eurozone's ZEW Survey - Economic Sentiment also improved to 31.4, higher than the estimated 25.4 and the previous release of 23.4. However, the US Dollar (USD) held its ground due to safe-haven flows driven by escalating geopolitical tensions between the US and Iran. US President Donald Trump indicated his lack of interest in renewing the Iran agreement, citing the naval blockade of Iranian ports as leverage and reiterating his intention to declare the Strait of Hormuz as American territory.

The US Dollar's strength may be short-lived as expectations of hawkish Federal Reserve monetary tightening ease. Recent unexpected declines in US Nonfarm Payrolls and modest consumer price inflation have reduced the likelihood of a Federal Reserve rate hike at the upcoming meeting, dropping to 36.6% from 48.4% a week ago. Analysts at MUFG/BTMU noted that the US Dollar has rebounded modestly due to deteriorating bond market sentiment, with UST bond yields surging sharply higher, reaching 5.32% for the 30-year yield, the highest since 2007.

The steepening of the yield curve in the US and elsewhere underscores the shift in global duration dynamics impacting the Dollar's latest move.