Friday June 20, 2008 - 10:14:15 GMT
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Forex Research - Euro Rises As Inflation Picture Worsens, Will ECB Raise Rates?
Euro firmed as the inflation picture worsened in Europe. German
producer prices rose 6.0% form 5.2% on an annualized basis-the fastest
pace in almost two years.
â€˘ Japanese Yen: Consolidates Above 107.70
â€˘ Euro: Inflation Data Sends Pair Above 1.5550
â€˘ Swiss Franc: Producer & Import Prices Unexpectedly Rise
â€˘ Canadian Dollar: Retail Sales On Tap
â€˘ US Dollar: No Data on Tap
The Euro firmed as the inflation picture worsened in Europe.
German producer prices rose 6.0% form 5.2% on an annualized basis-the
fastest pace in almost two years. Also, French wages increased 1.1%,
which was the highest on record. However, an unexpected jump in Swiss
producer & import prices generated the greatest Euro bullish price
action. The measure of prices for factory and farm goods rose 3.9% from
3.6% a year earlier. Adding to the Euro bullish picture was a 12.8%
year-over-year jump in Italian industrial orders from -3.7% the month
The jump in Swiss prices casts doubt on the SNBâ€™s contention that
inflation is transitory. The central bankâ€™s statements following their
rate decision and the $5 drop in oil prices following Chinaâ€™s fuel
price hike, provided dollar support as speculation increased that
energy prices may have peaked. However, the firming of oil prices and
the hotter than expected inflation data has weakened that argument and
increased the likelihood that the ECB may hike rates. The anticipated
demand destruction for oil has shown little signs of materializing, and
industry insiders maintain that the fundamentals continue to support
current prices. Therefore, as long as energy costs remain at their
elevated levels, the price stability mandate of the central bank will
force them to seriously consider a rate increase.
BoC Governor Carneyâ€™s signaled that future easing isnâ€™t being
contemplated by the MPC, when he stated there needs to be a â€śrelentless
focus on inflationâ€ť. Canadian retail sales are expected to have
improved in April, which will give the central bank breathing room to
weigh the upside risks of inflation, before deciding future policy.
The U.S. economic docket is bare and therefore the dollar will be at
the mercy of underlying themes. Oil prices figure to have significant
sway over dollar sentiment again. If prices rise following yesterdayâ€™s
drop, the potential impact on the worldâ€™s largest consumer of fuelâ€™s
economy will support the current pessimistic outlook and weigh the
Will ECB Raise Rates? Join us in EURUSD Forum
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