Germany's economic growth is showing signs of cooling, with the ZEW Indicator of Economic Sentiment dropping from 19.2 to 3.6 in September. Despite a slight GDP increase of 0.2% in Q1, the economy contracted by 0.1% in Q2, and private consumption is faltering due to high inflation and changing consumer preferences. The outlook suggests a challenging period ahead, with stagnation and slight declines in GDP likely in the coming months.
The Federal Reserve is set to cut interest rates for the first time since 2020, with options of a 25 or 50 basis point reduction. Market sentiment leans towards a 50 bps cut, but expectations suggest a more cautious 25 bps reduction may be likely, reflecting mixed economic signals. The upcoming FOMC meeting will also provide insights through economic projections and the dot-plot chart, influencing market reactions, particularly in Forex and U.S. equities.
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