German PPI Show Sharp Fall in Prices

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German Producer Prices declined for the first time in four months in May contracting by -0.3% versus -0.2% eyed as energy costs eased. On annual basis German producer prices rose at 2.1% versus 2.2% eyed -their lowest level in more than two years.

The dampening of factory gate inflation suggests that ECB may have more scope to ease monetary policy going forward. With price pressures easing and demand declining dramatically Europe may be in danger of falling into deflationary spiral hile policy maker continue to focus on inflation.

The news had minimal impact on trade as currency markets remained moribund ahead of the FOMC meeting later today. The markets are primed for some hint easing from Dr. Bernanke and company with risk FX having rallied yesterday in anticipation of further stimulus from the Fed. With no additional economic data from EZ, currencies may tread water for most of the early European session as traders await the key event risk in North American trade

Boris Schlossberg
Managing Director

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