German import price fell for the third month in a row on the back of declines in energy prices, bringing annual inflation level to their lowest levels since 2009. The annual rate declined to 1.3% well below the 2% target rate of the ECB indicating that price pressures in Europe’s largest economy are now non-existent.

The sharp decline in crude prices which have fallen 14% off their highs, were the primary factor in lowering the rate of inflation, but even without the petroleum component price gains remained well contained at 1.6% per year. The news may provide further scope for ECB to ease monetary policy with central bank now able to cut rates yet another 25bp to an all time of 50bp, but markets remain skeptical as to the efficacy of any further rate reductions and would prefer a much more aggressive stance on LTRO from the ECB.

The euro was very quiet in morning European trade hovering near the 1.2150 level but meeting stiff resistance in that area after staging a short covering rally yesterday. With no additional economic news on the calendar and other capital markets relatively quiet, the pair may continue to consolidate into North American trade.

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