German economic sentiment logged an unexpected improvement to reach a near one-year high in January as market experts expect interest rate cuts in the first half of the year, survey results from the think tank ZEW showed Tuesday.

The ZEW Indicator of Economic Sentiment rose to 15.2 in January from 12.8 in December. The reading was forecast to fall to 12.0. The latest score was the highest since February 2023.

However, the current situation index dropped to -77.3 from -77.1 a month ago. The score was expected to come in at -77.0.

More than half of the survey respondents assume that the European Central Bank will reduce interest rates in the first half of 2024, ZEW President Achim Wambach said.

There are even more pronounced shifts in US interest rate expectations, Wambach added.

More than two-thirds forecast interest rate cuts by the US Federal Reserve in the next six months.

The increase in inflation in Germany and the euro area has no impact on the monetary policy expectations of the respondents, Wambach added.

The ZEW survey showed that confidence regarding economic development of the Eurozone experienced a slight decrease in January.

At 22.7 points, the economic morale indicator fell by 0.3 points from December. In contrast, the situation index climbed 3.4 points to minus 59.3 points.

In December, Germany's harmonized inflation accelerated to 3.8 percent from 2.3 percent a month ago, official figures confirmed earlier on Tuesday.

Inflation in the euro currency bloc advanced to 2.9 percent from 2.4 percent in November. The German economy contracted 0.3 percent in 2023, which was the first decline in three years as a toxic mix of persistently high inflation, rising interest rates and the weak global demand pushed activity into a recessionary phase.

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