Today's releases provided no meaningful support for the euro. Their impact was very limited.

The report shows that business sentiment in Germany continued a tentative recovery in June, but it is too early to call it robust. The Ifo business climate index rose to 85.6 from a revised 85.0 in May, exactly in line with the market consensus. This is the third consecutive month of modest improvement after the slump to an October-2022 low in April. Nevertheless, the current reading remains the weakest since early 2025, which reflects the real state of the eurozone's largest economy.

The improvement was driven mainly by the assessment of current conditions. That sub-index climbed to 87.0 from 86.1 in May, comfortably above the expected 86.3. German firms are judging their present position more favorably, which is encouraging. Expectations tell a more mixed story: the expectations index edged up only to 84.1 from a revised 83.9 in May, below the 85.1 forecast. In short, business feels a bit better today, but confidence about tomorrow is still lacking.

The divergence between a firmer current assessment and lagging expectations captures the moment. The Ifo president noted that companies are becoming less worried about uncertainty and are increasingly hopeful that geopolitical tensions will ease. In other words, hopes for an end to the Iran conflict and the reopening of the Strait of Hormuz are underpinning sentiment, while real orders continue to fall.

In manufacturing, expectations improved noticeably, but new orders declined, and the appraisal of current conditions weakened slightly. In the services sector, sentiment rose on the back of satisfactory current activity, while expectations were essentially unchanged.

Interestingly, today's Ifo data fits the same pattern shown by yesterday's PMIs and the recent ZEW survey. Recall that the June ZEW also recorded a sharp jump in expectations on hopes of a diplomatic resolution, while the assessment of current conditions deteriorated. The motif is consistent across releases: Germany is living on expectations of a geopolitical resolution that could finally reboot the economy, but underlying demand remains too weak for a confident, broad-based recovery. It is a classic economy at a crossroads, where hopes are running ahead of the facts.

The main risk remains stagflation. If the situation around the Strait of Hormuz drags on, Germany risks being stuck between weak growth and persistent inflation driven by high energy costs. Note that German PPI released last week moved into solid positive territory for the first time in a year, up 2.2% year-on-year. This is a signal that the manufacturing supply chain is already feeding higher input costs into consumer prices.