Yesterday in economic news, Germany’s producer price index fell last month, official data showed on Monday. In a report, Destatis said that German Producer Price Inflation fell to a seasonally adjusted annual rate of -0.3%, from -0.1% in the preceding month. The Spanish trade deficit dropped by 29.5 percent from January to November 2012 compared to the same period of 2011, the Spanish Ministry of Economy and Competitiveness reported on Monday.
US markets were closed to the Martin Luther King Holiday as President Obama was officially inaugurated in grand celebrations in Washington, which was the main news focus yesterday. There was little else in headlines and very little eco data to support moves the US dollar. The euro slipped against the U.S. dollar, but the change was nearly imperceptible. After gaining nearly 10% during the past six months, the euro has been confined to an exceptionally narrow range closing at 1.3313 This morning the euro was able to climb to 1.3343 after the Bank of Japan announced its new inflation target of 2% and ongoing aggressive asset purchases.
Today markets may see the euro come under pressure as German and Austrian warning that direct bailout will not be widely available before 2014, when ECB will take its role as single supervisor and ESM will be the last resort to lend. The euro may come under pressure ahead of Spain GDP due today. However, expected improvement in the German and eurozone ZEW survey numbers may limit the downside pressure.
In view of last week’s weaker than expected Q4 German GDP release, investors will be training their attention on forward looking indicators like the ZEW. Consensus is for continued improvement in the “expectations” component. Such an outcome would see anticipated growth pull even further away from the constrained “current conditions” measure. Fiscal uncertainties however should continue to temper investor growth expectations through Q1 2013. Indeed with ECB policy yet to show its hand with regard to OMT policy, a meaningful rebound in hard data still fails to support such expectations.
The euro may weaken swiftly in coming months if manufacturing and employment indicators remain subdued contrasting against over-optimistic growth expectations.