Interest rates are not the only reason why the EUR/USD continues to rise. German economic data continues to surprise to the upside with the number of unemployed people dropping by a more than expected 40k in the month of October. This brought the country’s unemployment rate down from 8.8 to 8.7 percent, the lowest since 1993.
The Financial Times has extensive coverage today on why German corporations have been able to weather the strain of Euro strength far better than their French and Italian counterparts. According to the articles, more diversification of sales internationally, increased production in local markets and strong domestic demand has the made the country less sensitive to Euro strength. Even the automobile industry which has been extremely hard hit by the strength of the Euro over the past few years (Volkswagen lost EUR1 billion due to currency fluctuations) is shifting production to the US where costs and profits will be less sensitive to currency fluctuations. ECB officials continue to be worried about inflation. Consumer prices are due for release tomorrow; they are expected to remain above the ECB’s 2 percent target for the remainder of the year, keeping the central bank hawkish and the Euro on its way to testing 1.50.