The euro gave back some of its recent gains as industrial production falls by the sharpest amount in 20 years.
This was widely expected given previous reports of slower manufacturing activity in France and Germany. However despite clear signs of slower growth, ECB Member Bini Smaghi was crystal clear about the central bank’s priorities in an article to the Financial Times on Friday. He said that the slowdown in the productivity is not enough to take their focus off of inflation. If domestic inflation does not come down, there is only one option left, which is monetary policy and all should be aware that the central bank must ultimately act if this is what is needed to maintain price stability. For this reason, the EUR/USD could continue to rise towards its record highs. The German ZEW survey of analyst sentiment is due for release tomorrow. Given the recent rate hike and turn in economic data, we expect analysts to be more pessimistic.