The Euro staged a very strong rally today thanks to the growing dichotomy between US and Eurozone growth and monetary policy. In contrast to the slowdown that we have been seeing in the US, Eurozone growth is holding very steady at enviable levels. In the first quarter, the Eurozone grew by 3.1 percent which compares to the 1.3 percent growth in the US on an annualized basis.
Germany continues to remain immune to the strong Euro and the recent Value Added Tax Increase. The government must be applauding themselves for a job well done. French and Italian growth unfortunately did not fare as well with deceleration seen in both countries. Nonetheless the first quarter growth numbers indicate that the region is healthy enough to handle an interest rate hike by the European Central Bank next month. Consumer price figures are due for release tomorrow along with French non-farm payrolls and wages. French data could be softer given the recent slowdown in growth while the strength of the Euro should cap any major increases in consumer prices. Meanwhile Swiss retail sales were much stronger than expected in the month of March as consumer spending jumped by 7.6 percent year over year. The market was actually looking for softer spending but the resilience of the Swiss consumer should pave the way for a rate hike this year.