Germany slips into deflation for the first time since the financial crisis

Enrique Díaz-Álvarez30/Jan/2015Currency Updates

GBP

A number of smaller data releases in the UK saw the Pound fall 0.4% against the greenback as London trading came to a close.

Before markets opened in London, Nationwide released its housing price change for this month. Having remained close to static over the past three months, price growth once again remained low at just 0.3%. This marked the fifth consecutive month of declining growth and, despite coming in higher than forecast, caused the year on year figure to register its lowest value since July. The annualised figure fell further from 7.2% yearly growth in December to 6.8% in January. An indicator of short term trends in the UK retail and wholesale sector, known as the Distributive Trades Survey, fell in January to 39, although remains very strong having spiked in December.

A handful of second-tier data releases due out today, with the Bank of England’s measure of net lending expected to cause the most market volatility when announced at 9.30am this morning.

EUR

The single currency continued to stabilise against its peers yesterday, finishing 0.25% up on the Dollar and substantially higher against the Pound, up 0.75%.

A busy morning of data releases in the Eurozone on Thursday. As expected, Germany’s unemployment rate remained constant for the second consecutive month at 6.5%. The overall number of unemployed individuals in Germany did, however, decline for the fourth consecutive month in January by 8,000. While this was weaker than markets had expected, it represented the fourth consecutive month that the absolute level had fallen. Consumer Confidence, as compiled by the European Commission, remained negative once again in the Euro-area, although improved marginally this month. Consumer’s expectations of the future economic and employment situation improved strongly over the past month, with the index climbing to a six month high of -8.5. On the negative, however, inflation in Germany fell for the first time since October 2009, with price growth down 0.3% year on year, having fallen by a while percentage point this month.

Today marks a busy end of the week for the Eurozone. After falling into deflation for the first time since September 2009 in December, price growth in the ailing Eurozone is expected to plunge deeper into negative territory when released in tandem to unemployment data at 10am this morning.

USD

Greenback traded close to its eleven year high for much of the day yesterday; with the US Dollar index finishing trading 0.1% higher.

Most volatility was driven by the Federal Reserve statement on Wednesday evening, although a number of data releases caused moderate volatility. The weekly batch of initial jobless claims showed a sharp upturn, with the number of American’s filing for unemployment benefits down by 43,000 to 265,000, near to a 15 year low. Continuing Jobless Claims were equally as encouraging, dipping from 2.456M to just 2.385M. Pending Homes Sales, a leading indicator of trends in the housing market in the US, increased on an annualised basis for the fourth consecutive month in December. The National Association of Realtors figure came in at 6.1% YoY.

A similarly busy day in the US on Friday is centred on the GDP growth data at 1.30pm UK time. This is followed by the Chicago Purchasing Managers Index at 2.45pm, with moderate volatility expected.

Rest of the world

Speculation that South Korea will cut to a record low interest rate amid potential monetary easing by global central banks caused the Ringgit to weaken against the Dollar. In Africa, the Egyptian Pound fell by the most in two years as officials in the country made steps to eliminate unregulated trading of Dollars in the black market in order to encourage investment.

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Written by Enrique Díaz-Álvarez

Chief Risk Officer at Ebury. Committed to mitigating FX risk through tailored strategies, detailed market insight, and FXFC forecasting for Bloomberg.