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German economy struggles

German economy struggles

The stuttering recovery of the Eurozone’s largest economy continued as German industrial production and trade data disappointed in May. Industrial production fell by 1.0% month on-month, worse than market expectations of a 0.5% fall and the first contraction for three months. The weakness in output was broad based with falls in energy, construction and manufacturing. The strong run of previous month’s industrial production should still contribute to GDP growth in Q2, however, the narrowing trade balance is likely to subtract from growth.

Greece secured a €6.8 billion bailout deal yesterday sparing the country from defaulting on its debt in August. The deal approved by the IMF and the Eurozone set conditions that Greece must continue its promise to meet the demand for further reforms including cuts to the government payroll and sale of state assets. Greece has been unable to raise funds from the international bond markets since 2010.

Trading sentiment remains dominated by expectations of the Fed tapering its QE stimulus programme underlining support for the US dollar. However, EUR/USD consolidated yesterday holding up above the $1.28 level while GBP/USD has recovered some of its recent losses trading a high of $1.4966. A run of UK data this morning will keep the market’s focus firmly on GBP.

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