The euro lost some ground just before the bank holiday weekend as the German Producer Price Index (PPI) came out worse than expected. The PPI is a key indicator of levels of consumer inflation – which has been a key concern for the European Central Bank (ECB) of late. Low levels of inflation have been putting pressure on the ECB to either reduce interest rates further or increase stimulus in order to prevent deflation. Both of these would have a negative effect on the single currency, thus Thursday’s figures caused some weakening.
The first data releases to watch this week are the Manufacturing data sets due out on Wednesday. The Flash French and German data sets, due out at 8.00 and 8.30am respectively, are likely to have the largest impact as moderate growth is expected in both. This is followed on Thursday by German Business Climate data, which is compiled as a result of analysis of a survey of business people. As economic sentiment data was somewhat weaker than expected, it will be interesting to see the outlook of the business world. European Central Bank (ECB) President Mario Draghi is also speaking on Thursday and may cause considerable movements in euro rates. Draghi sought to quell euro appreciation in his latest address and stronger guidance is likely to have further negative effects on the single currency, especially if investors believe this will be followed by action.
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