The German IFO survey will increase speculation over a sharp economic slowdown and is liable to trigger a deeper Euro correction.
The German IFO index weakened to 102.4 in April from 104.8 the previous month which was significantly below expectations. The significant monthly downturn will increase fears over a significant slowdown in the German and wider Euro-zone economy, especially as the Euro strength was a contributory factor. There was also a sharp downturn in the Belgian industrial confidence indicator released on Tuesday which will increase speculation over a wider Euro-zone downturn.
The ECB remains determined to maintain a tough policy stance to curb inflationary pressure in the economy. There will, however, be an increased risk of policy splits if there is evidence of a deeper downturn in the economy. In comments on Wednesday, for example, Bonello who represents Malta stated that it was hard to argue for higher interest rates.
The Euro dipped to lows near 1.5750 after the IFO data and the comments from G7 officials will remain in close focus in the short term. There is the possibility that senior officials will look to encourage a sharper Euro correction weaker.