Friday, April 29, 2011

European Inflation Continues to Rise; Pressuring Dollar Yet Again

At this moment, the euro is up for the 9th consecutive session versus the dollar.  We'll leave out the record highs of the Australian dollar, and Swiss franc for the moment (not to mention precious metals) to concentrate on the euro.... which is not exactly a region the U.S. should be faltering against.  But with the willful neglect of the dollar by The Bernank (who deflects all commentary on this subject to the US Treasury), and the ECB on a path of increased interest rates - the euro is winning the ugly duckling contest.  And as you should know by now the only trade in the market nowadays is the inverse dollar trade - when it sucks wind, you can buy anything.

This morning the euro region reported another uptick in inflation - I don't know the ins and outs of how they create their inflation figures as I do with the U.S. and U.K., but it seems laughable that a region with essentially 1 booming country (Germany)... and 3 in states of default or rescue.... not to mention 1 with a 21%+ unemployment rate (Spain) is showing higher inflation than the U.S.  But since we're in the Matrix let's eat our blue pills and play along.  With the sole mandate of the ECB to control inflation, today's figure should point to further rate hikes - which benefits the euro in interest rate differentials... and of course leads to further pressure on the dollar.

Via Reuters:

  • European inflation accelerated to the fastest pace in two and a half years and confidence in the economic outlook declined as surging energy prices threatened to undermine growth. 

    Euro zone inflation rose further above the European Central Bank's target in April, increasing the chances of an interest rate rise in June, despite a weakening of economic sentiment and household demand.  Inflation in the 17 countries using the euro rose to 2.8% year-on-year this month from 2.7% a month earlier, the highest level since October 2010, when it was 3.2%.
  • Consensus expectations had been for a flat reading compared to March ahead of next Thursday's European Central Bank meeting on interest rates. "I can imagine that some market participants will expect the rate increase by the European Central Bank at an earlier date. We expected June, the market is still expecting July. I guess the consensus will now move to June," said Piet Lammens, economist at KBC.
  • The ECB raised its main interest rate from record lows of 1.0 percent to 1.25 percent in April, concerned about the impact on consumer prices of rising costs of energy and food.

  • Euro zone consumer inflation expectations, which have been rising quickly since November 2010, edged marginally lower to 30.7 from 30.8.

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