Yesterday’s data from Germany on inflation has provided ample room for the European Central Bank (ECB) to lower interest rates at the next meeting on September 12. Observing the market’s reaction, movements towards this scenario are currently underway. Meanwhile, confusion continues in the oil market.
Inflation in Germany below expectations
Inflation is one of the few macroeconomic indicators, along with unemployment, which – when below expectations – is good news. In Germany, the annual inflation rate in August was 1.9%, despite expectations of 2.1%. The last time we observed price increases in Germany below the 2% level was in March 2021. This is a reading which allows the ECB to accelerate the pace of interest rate cuts. The bank is in a tight spot as it grapples with the fear of returning inflation on one hand, and the economic situation of Europe on the other. The latter is brought about by the crushing cost of capital, driven by the persistently high interest rates. How did the currency markets react? Given the signal that there’s room for the ECB to accelerate cuts, we witnessed sell-offs of the euro. As a result, the euro’s exchange rate against the dollar fell significantly.
Data from the USA
Right after the data from Germany, a set of data from the US was also released. Of note, of course, is the GDP. Despite this being final data, only a revision of preliminary data, we saw a slightly different reading than before. The annual, annualized rate rose from 2.8% to 3%. It is important to remember that annualization means that the quarterly data improved and extended it to the whole year. Consequently, such a change should be treated as four times smaller. Also, data on unemployment benefit claims did not surprise the markets. Although there were 2,000 fewer, it is not a number that can shake the market. As a result, the market is still shifting interest from the euro to the dollar.
Carousel on oil
Just yesterday, we talked about drops in the prices of black gold. Since then, however, two events have occurred that have significantly impacted this market. One is the production problems in Libya. A drop in production of about 0.5 million barrels per day, or about $40 million, is being discussed. The other issue is the drop in production in Iraq from 4.25 million barrels per day to 3.9 million. In the case of the latter news, it should be added to the context that this country should officially only be producing 4 million barrels as part of its participation in OPEC. Given that the restrictions in Libya could still increase, it is no wonder that oil prices are once again rising. When a product is missing, its price should increase.
Today on the economic calendar, pay attention to:
11:00 – Eurozone – consumer inflation,
14:30 – USA – American expenditure and income,
14:30 – Canada – GDP,
15:45 – USA – Chicago PMI index.
Maciej Przygórzewski – Chief Analyst at InternetowyKantor.pl and Walutomat.pl.
Source: https://ceo.com.pl/inflacja-w-niemczech-otwiera-drzwi-do-obnizki-stop-przez-ebc-euro-w-odwrocie-na-rynkach-71708
