The Euro made some steady progress against the US dollar in yesterday’s trading session after economic data showed euro zone business activity made an unexpected rebound in January, while across the Atlantic U.S. business activity didn’t hold up so well.
Business figures from the world’s largest economy contracted for the seventh straight month in January although it wasn’t as bad as first thought as the downturn moderated across both the manufacturing and services sectors for the first time since September and business confidence strengthened as the new year began.
More importantly, a survey from S&P Global out Tuesday showed price pressures ticking higher for the first time since last spring, indicating that inflation is by no means under control at this moment which lifts the odds the U.S. central bank may need to keep up the pressure through higher interest rates, including at next week's first policy meeting of the year.
Most analysts are expecting the US Central Bank to raise interest rates by 25 basis points next month but with inflation in the US still running at more than 4 times the Fed’s target rate, a 50-basis point hike cannot be ruled out and the Euro will take a hit should this occur.
We have just witnessed key economic data hit the market from Germany the Business climate index coming in at 90.2 which was the number expected by analysts although it was well above last month’s figure of 88.6. The IFO expectations index fared a little better coming in at 86.4 against consensus for a figure of 85.
Neither of the news however failed to boost the Euro as investors remain wary of placing trades against the greenback before the release of GDP figures and durable goods order numbers tomorrow from the US which may finally help the Fed decide on a 25 or 50 point rate hike at next week’s meeting.