chf fundamentals

Euro Slide May Continue On German Retail Sales, Swiss CPI Hits Nearly 15-Year High

Thursday, 31 July 2008 20:57:02 GMT  |  Terri Belkas, Currency Strategist

Despite a pop higher during the US trading session, the Euro remains soft following a morning of mixed economic data.

On one hand, the number of unemployed workers in Germany fell in line with expectations by 20,000 while estimates for Euro-zone CPI show that price growth accelerated to an annual pace of 4.1 percent, which marks a fresh 16-year high and is well above the European Central Bank’s 2 percent target. On the other hand, the Euro-zone unemployment rate picked up to 7.3 percent from 7.2 percent, pointing to broad weakening in the European labor markets. Clearly, inflation pressures persist throughout the Euro-zone, but will it be enough to convince ECB President Trichet to raise rates further. Unlikely. Recent PMI reports that indicated a contraction in business activity in both the services and manufacturing sectors are probably just the tip of the iceberg in reference to the slowdown in the Euro-zone’s economy, and given these circumstances, Mr. Trichet will have little room for maneuver in coming months when it comes to monetary policy. Looking ahead to Friday, German retail sales could weigh on the Euro, but more likely will simply serve as a good leading indicator for the composite Euro-zone report next week. Meanwhile, Swiss CPI slipped 0.4 percent during the month of July, but surged to a nearly 15-year high of 3.1 percent from a year earlier. Like much of the world’s economies, Swiss inflation is being driven by high energy and food prices, but since the Swiss National Bank is far more patient than central banks like the ECB, don’t count on threats of a rate increase anytime soon.

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