Of the euro area
The indicator of economic sentiment ZEW in Germany rose by 17.6 points in October. The growth is not as strong compared to the previous month, but it reflects positive changes in the economy. In the euro area as a whole, the index rose 31.7 26.7 points, but is still in the zone of two-year high.
Inflation in September rose 0.4%, which is higher than + 0.3% in August, while the year-on-year growth was 1.5% more than in the previous month. The root value excluding food and energy, the resources, the weather forecast has been maintained at 1.3%, which can be seen as a positive for the euro.
The intensity of the confrontation regarding the prospects for the reduction of the asset purchase program is not in decline. The Constitutional Court of Germany on Wednesday rejected a claim of the Bundesbank on the right to stop participating in the program of repurchase of assets. Even if considering this process, the ECB will be severely limited in its capabilities. Mario Draghi in his next speech rejected the thesis of the ECB buyback program prevents the structural reforms in the countries of the euro area. In his opinion, the low rate to promote the reforms they create favorable macroeconomic conditions.
The ECB of course is resistant to the growth of the euro. While one of the official main criterion is inflation and of being below the target, it does not intend to make changes to the monetary policy. These expectations put pressure on the euro before the ECB meeting, on 26 October, while most of the attention this time will be higher than usual.
The euro has lost its driver for growth and it is behind the momentum of the dollar. The decline of support in the area of 1.1660 / 75 with the subsequent evolution of 1.1550 is highly probable.
The book has received support on Tuesday after the publication of data on consumer prices, which in September increased 3.0% year on year, from 2.9% a month earlier. At the same time, a number of other price indicators, such as producer prices or retail price index, to show a slowdown in the rate of growth. In general, which has led the market to believe that the growth of prices is not so convincing as to provide a confidence rate increase by the Bank of England at its meeting of 2 November.
A day later, the employment report is released. Unemployment remains at 4.3% in August, which is close to full employment. On the other hand, the average wage growth has been slightly better than expected at 2.1%, but it was slightly worse than the 2.2% the previous month. These data cannot be considered as a favourable factor for the book. At least this could be due to a simple reason, the growth of wages lagging behind inflation and is significantly less than two years. In fact, the labour market does not support the price increases. Therefore, high inflation is a consequence of the increase in import prices after the fall of the pound a year ago, and not a reflection of the increasing demand of the consumers.
imports from the EU will become even more expensive if a mutually acceptable solution is found. This will be a factor in favour of inflation but not economic growth, because this may cause an increase of the lending capacity of households in the context of weak income growth. Finally, this will ultimately hit the consumer activity.
The pound continues to trade in the wide range of 1.3350 / 3050, the probability of moving to the bottom of the month is on the increase.