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ECB to Look Through Stronger Euro-Zone Economic Data

ECB to Look Through Stronger Euro-Zone Economic Data

Martin Essex, MSTA,

Talking Points

- The European Central Bank is unlikely to taper its monetary stimulus program soon despite stronger data from the Euro-Zone and from Germany, its largest economy.

- The figures are therefore unlikely to boost the Euro near-term

- See the DailyFX Economic Calendar and see what live coverage for key event risk impacting FX markets is scheduled for the week on the DailyFX Webinar Calendar.

The Euro-Zone economy is growing healthily, as is the economy of its largest member Germany, according to a batch of data released Tuesday. However, that is unlikely to persuade the European Central Bank to “taper” significantly its monetary stimulus program near-term, and is therefore unlikely to strengthen the Euro.

The figures released included news of stronger Euro-Zone economic growth, lower unemployment and higher inflation. GDP grew by 0.5% quarter on quarter in the final three months of last year, up from the 0.4% expected and the previous 0.4%. Year on year it was unchanged at 1.8% rather than the 1.7% predicted. The unemployment rate in December was 9.6%, its lowest in more than seven years. Inflation in January was 1.8%, its highest since February 2013, and core inflation was stable at 0.9%.

In Germany, unemployment fell by more than expected in January, to a record low, although there was also news of an unexpected drop in retail sales in December.

There was little reaction in the EURUSD exchange rate though, as traders took the view that the ECB is unlikely to respond to the data by loosening monetary policy near-term. However, the Euro did jump later after US President Donald Trump's trade advisor told the Financial Times newspaper that Germany was benefiting from a “grossly undervalued”Euro. EURGBP and EURJPY also climbed, while the Dollar index dipped below the 100 mark for the first time in five days in a market dominated by Trump’s policies.

Chart: EURUSD 5-Minute Timeframe (January 31, 2017). Source: IG

In the government bond market, there was an early rise in the yield on the Euro-Zone benchmark 10-year German government bond but it then lost most of its gains.

--- Written by Martin Essex, Analyst and Editor

To contact Martin, email him at martin.essex@ig.com

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