Today’s market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com
Euro is consolidating today near the level of 1.0947 against the US dollar at approximately 7:00 a.m. GMT, before returning to decline by about 0.14% a few minutes later, but it is preparing to record the third consecutive week of gains.
The return of industrial production and producer prices in Germany to greater-than-expected growth for the first time in eight and three months respectively helped the euro maintain its slightly higher levels today before returning to decline.
Better than expected positive data today from Germany today may contribute to weakening hope of the possibility of the first possible cut in interest rates next June, after Christine Lagarde dashed in her speech yesterday this hope of the possibility of the ECB cutting rates permanently next April.
In detail, industrial production reversed a 2% contraction in December to a larger-than-expected 1% growth in January on a monthly basis. According to the Federal Statistical Office (Destatis), a 2.7% recovery in the construction sector contributed to supporting the recovery in industrial outputs in January, in addition to the growth in outputs of the food and machinery assembly and maintenance industries.
The Producer Price Index (PPI) also recorded a slightly higher-than-expected growth of 0.2% in January on a monthly basis after a contraction of 0.8%. On an annual basis, producer prices contracted at the slowest pace since last July, by 4.4%, also according to Destatis.
While the rise in producer prices was supported by the rise in prices of food, consumer and durable goods, in addition to capital goods, in contrast to the continued decline in energy prices.
Euro is also benefiting from the extreme weakness of the US dollar, with markets hoping for the possibility of the Fed cutting interest rates next June, in addition to less hope for that in May. These expectations were reflected in the continued noticeable decline in Treasury bond yields, especially those for ten years, to the lowest levels in more than a month.
This sharp decline in US Treasury bond yields offset the negative impact of the continued decline in euro zone bond yields as well, which is led by Italian bonds.
Today, the focus turns to US labor market data with expectations that 198,000 jobs will be added in February and wage growth slows to 0.2%. While weaker than expected numbers may help the euro complete its path towards regaining the highest levels since mid-January.