The German Consumer Price Index rose to 1.3% year-on-year, and is unchanged from the month of September. This means that German inflation, up and down for most of 2010, stabilized and remains below the important 2% inflation threshold.
Results for October were in line with consensus estimates, which predicted a 0.1% gain in October resulting in a 1.3% YoY result.
German inflation is widely viewed as an important component of currency market trading analysis involving the euro because of Germany’s status as the single largest contributor to the overall health of the European Union’s economy. The fact that stability appears to be here – and the rate of inflation appears to be normalizing – is relief to some investors who have watched the zig-zag pattern warily.
Partly as a result of the report, the euro rose 0.09% against the dollar, to 1.3931 – still below the $1.40 psychological mark for the market by up from the previous week’s decline. The euro did decline against the pound, but rallied and is now surging back towards the previous day’s close. EUR/GBP is currently down 0.02% to 0.8621.
The favorable CPI report comes at a good time for the euro, which was battered early on in choppy trading due to continued doubts about the euro zone’s peripheral debt. Buying in the euro from Asian and Middle Eastern accounts also helped restore a bit of the euro’s upward pressure, although it is far from certain that support will remain high.
Hans-Guenter Redeker, chief forex strategist at BNP Paribas, voiced a somewhat-pessimistic outlook: “We are bearish on the euro with spreads widening and peripheral euro zone debt once again under pressure. Under these circumstances, the European Central Bank speaking of normalizing money market rates by January looks farfetched. We expect the euro to fall to $1.34 by year end.”
Currency market trading analysts have predicted anywhere from continued gains to significant drops in the euro in the short term. The failure of the German sector to hold up the euro’s strength is yet another sign of the same refrain from earlier this year – the fact that peripheral debt concerns are dragging down the currency and will likely do so for some time to come.
At this rate, Germany’s stable performance may be keeping the euro from sliding even further to lower support levels, as feared.