The Euro is on its way to 1.58 as stronger inflation data reinforces the need for a rate hike.
German import prices rose 2.4 percent last month, the strongest gain in 18 years. Unsurprisingly this jump was due largely in part to the surge in oil prices. With the European Central Bank interest rate decision exactly a week away, the ECB will almost certainly raise interest rates. In fact, that is exactly what ECB officials have been telling the markets on a near daily basis. However the market mover will not be the rate hike itself, but Trichet’s post meeting press conference. Judging from the other comments from ECB officials, there is a strong chance that Trichet will downplay further rate hikes, which could be perceived as Euro bearish. He will have to be particularly careful in choosing his words because they could determine whether the Euro breaks 1.60 or falls below 1.55. The move in the Euro over the last 48 hours has been driven entirely by the market’s belief that there is a growing differentiation between what the ECB and Federal Reserve are doing. Retail PMI and the Eurozone current account numbers are due for release tomorrow morning. German retail sales have been weak, but French consumer spending has been strong, making it unclear how retail PMI will fare.