020 7898 0500Monthly inflation data out of Germany, Europe’s most influential economy, gave some respite to the euro yesterday. The figures came in at a flat 0%, marginally better than the -0.1% that most forecasters were predicting. European Central Bank (ECB) President Mario Draghi had stressed the importance of avoiding negative inflation rates for the Eurozone, so the figures provided a glimmer of hope. This morning’s year-on-year figures for the whole bloc will also be watched closely in the market.
We may see the euro relatively range-bound over the next few days ahead of Thursday’s ECB press conference, as traders will be looking for clues as to Draghi’s medium-term strategy. He has made no secret over the last few conferences that he welcomes a weaker currency for the bloc, seeing it as a way of turning around its ailing economies by reducing the relative cost of exports. However, given that the euro has fallen by nearly 10% against its two most-traded peers, the US dollar and the British pound, Draghi will be forced at some point to accept that enough is enough in order to avoid a euro in free-fall. Other data to keep an eye on are German retail sales, as well as monthly unemployment figures for the whole bloc.
