EUR/USD Exchange Rate Muted as German PPI Prints Higher-Than-Expected
The Euro US Dollar (EUR/USD) exchange rate is trading flat during today’s session as German PPI overshoots market forecasts.
At the time of writing, the EUR/USD exchange rate is trading at around $1.1352, with minimal market movement.
Euro (EUR) Rangebound amid Disappointing German PPI
The Euro (EUR) is trading in a narrow range against the US Dollar (USD) following the release of German PPI data this morning.
Printing at 24.2% in December 2021, the figures overshot both the previous reading and market predictions of 19.2% and 19.4%, respectively.
This shows an acceleration in German producer inflation for the 12th consecutive month.
The biggest contribution came from energy prices, up by 69% – with an increase of 121.9% for the distribution of natural gas and 74.3% for electricity.
Producer inflation, excluding energy, rose by 10.4%.
Overall, 2021 saw an average increase of 10.5% on consumer goods.
As the largest economy in Europe, rise in producer price in Germany will fuel further speculation over Eurozone inflation and may be supportive of EUR exchange rates.
However, the President of the European Central Bank (ECB), Christine Lagarde maintains inflationary pressures in the Eurozone are ‘transitory’.
Lagarde predicts that inflation will ‘stabilise and ease gradually in the course of 2022’ as energy prices and bottleneck supply chains that were seen during 2021 are expected to improve over the coming year.
Lagarde said:
‘The cycle of the economic recovery in the U.S. is ahead of that in Europe. We thus have every reason not to act as rapidly and as brutally that one can imagine the Fed would do.’
This suggests that ECB won’t be tightening monetary policy which is likely to, in turn, subdue EUR sentiment.
US Dollar (USD) Mixed as Fed Prepares to Tighten Policy
Meanwhile, the Euro US Dollar exchange rate is muted as reports suggest that the Federal Reserve will tighten monetary policy faster than initially thought in a bid to curve high inflation.
As coronavirus is seen to be less of a threat to the US economic recovery, Fed Chair, Jerome Powell, has recently stated that he intends to build an economy that will ‘function right through these waves of Covid-19’.
Presently, the Fed is predicted to increase rates three times throughout the course of the year, expectations of which have helped to underpin the US Dollar so far this year.
Robert Kavcic, senior economist at BMO Capital Markets, said:
‘It’s almost as if, all at once, the Fed has realized that policy has been left too accommodative, for too long. To their credit, if they’ve realized a mistake, they’re going to fix it – and fix it fast.’
EUR/USD Forecast: Will US Employment Data Boost USD?
Looking ahead, the Euro US Dollar (EUR/USD) exchange rate is likely to be influenced by US employment data scheduled for release this afternoon.
US initial jobless claims are forecast to slip from 230K to 220K. This will support the ‘Greenback’ as more individuals are in employment which will boost the US economy.
On the other hand, the single currency is likely to be impacted by Friday’s speech from ECB’s President, Christine Lagarde, as investors await further hints of future policy changes.