With the Euro closing in on 1.42, ECB President Trichet has finally buckled down and talked about the currency?s recent moves.
Unfortunately he didn?t deliver much when he tempered his comment about excess volatility with the reminder that their baseline views on Eurozone growth remain intact. What Trichet is trying to tell us is that he doesn?t like the fact that the Euro is rising, but at the same time, he doesn?t think that it is a major problem. One of the main reasons why he is able to remain hawkish is because the German labor market has been healthy. The unemployment rate dropped from 8.9 percent to 8.8 in the month of September. The amount of unemployed people also fell by a larger than expected 50k. Not all data was good however; retail PMI in German deteriorated. It seems that Germany is having a much harder time with the recent Euro strength than France. French data has actually been decent. For example, French retail PMI in the month of September increased from 51.1 to 54.2. Tomorrow, we have German retail sales and French producer prices. Sales are expected to slow but inflation could surprise to the downside. Meanwhile the Swiss franc continues to ignore optimistic comments from the Swiss National Bank. According to the latest SNB report, the economy is strong and they expect 2.5 percent growth this year.
Written by Kathy Lien, Chief Currency Strategist of DailyFX.com