The Euro strengthened against the US dollar as producer prices in Germany grow by the fastest pace in nearly 2 years.
It is actually a bit surprising that the Euro still responds to stronger inflationary pressures which is nearly a given considering that food and energy prices continue to climb. ECB member Bini Smagh warned this morning that rates will have to increase because if “inflation is left to creep up, the cost of bringing it down later will be even higher.” The focus next week for the Eurozone will be how inflation has impacted growth. The week starts off with the German IFO report, and the service and manufacturing PMI numbers. Then on Friday, we are expecting the retail PMI numbers and current account. This past week, German investor confidence dropped to a 15 year low. The recent drop in consumer spending as well as the threat of an interest rate hike next month should also weigh on business confidence. Meanwhile, Switzerland also reported a sharp increase in import prices but apparently that was not enough to convince the Swiss National Bank to raise interest rates. Next week, Switzerland will releasing the UBS consumption index and KoF leading indicators.