Can the Euro clear 0.8400 against the British Pound as German business climate tops forecasts?

• The Euro edges higher across currencies, supported by a jump in Germany’s IFO Business Climate Index to three-year highs in October.
• Weaker sentiment on current economic conditions has been outweighed by an improvement in expectations.
• Having recovered its earlier losses, EUR/GBP has climbed to session highs around 0.8400.

Gains in the Euro (EUR) against the British Pound have continued on Monday, supported by a stronger-than-expected German IFO Business Climate report. After reversing an earlier decline, EUR/GBP is testing 0.8400 at the time of writing. The pair has recovered 0.3% from the year-to-date lows near 0.8360 recorded earlier on Friday.

Rather than weakening to the 89.8 expected by markets, German business sentiment rose to 90.2 in October from September’s 89.9, reaching its highest reading in more than three years. Although the current economic conditions component slipped to 88.8 from 89.5 a month earlier, stronger expectations offset that deterioration. The expectations gauge increased to 91.6 from 90.4 in September.

How are lower Oil prices and French yields supporting the Euro?

A modest pullback in Oil prices is lending support to the Euro. On Monday, Brent Oil fell below $110.00 per barrel, down 2% from Friday’s highs. The decline followed reports that Qatari mediators had arrived in Tehran on Sunday to pursue another initiative aimed at easing tensions between the US and Iran.

Meanwhile, ratings agency Moody’s retained France’s Aa3 debt rating despite the country’s swelling debt and social unrest, which triggered large-scale protests across most major cities this weekend. Markets had expected a downgrade and welcomed the decision. France’s 10-year Treasury yields dropped below 5%, before partially reversing the move during Monday’s European trading session.

With monetary policy decisions from the European Central Bank (ECB) and other major central banks due this week, investors are likely to remain on the sidelines. The Bank of England (BoE) meets next week, when markets are preparing for a quarter-point rate increase. That expectation is highly likely to limit declines in the Pound this week.