0.8400 test for Euro against British Pound as German business climate tops expectations

• Three-year highs mark October’s German IFO Business Climate Index. The Euro edges higher across the board following the jump.
• Stronger economic expectations have outweighed weaker sentiment towards current economic conditions.
• Having recovered its earlier losses, EUR/GBP has climbed to session highs around 0.8400.

EUR/GBP has rebounded 0.3% from its year-to-date lows. At the time of writing, the pair is testing 0.8400 after reversing an earlier retreat from levels near 0.8360 reached on Friday. The Euro (EUR) is extending its advance against the British Pound on Monday after Germany’s IFO Business Climate report beat expectations.

At 90.2 in October, German business confidence reached its strongest level in more than three years. The reading rose from September’s 89.9, defying market forecasts for a decline to 89.8. Although the current conditions assessment slipped to 88.8 from 89.5 a month earlier, a rise in the expectations gauge to 91.6 from September’s 90.4 offset that weakness.

Below $110.00: Brent retreat and lower French yields support Euro

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

Meanwhile, Moody’s retained France’s Aa3 debt rating despite its ballooning debt and social unrest, which triggered mass protests in most major cities this weekend. Markets welcomed the decision, having expected a downgrade. France’s 10-year Treasury yields dropped below 5%, then partly reversed that decline during Monday’s European trading session.

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