Slowly but steady boys and girls. I did not realise the effect that the value of a currency can have on inflation. Makes sense. If the PPI is lower than the CPI is lower and they dod not need to raise rates. Capitalist, you have the value of the currency factored into your calculations right?
Now I know that if the EUR goes to da moon then they will raise rates more slowly. GBP is a different animal. But for the swissie and the euro it would apply quite nicely it seems.
Euro – The Euro remains very strong in the face of healthy US data. The ECB monthly report released this morning remained essentially unchanged from the prior month. The report indicated that there were still upside risks to inflation and improving prospects for growth. The comments from EU’s Alumnia today are a great reflection on how the ECB probably felt at their last monetary decision. Alumnia said that the Euro’s appreciation has been moderate and the recent strength of the currency has helped to push down inflation. Between November 21st and December 2nd, the EUR/USD appreciated from 1.2860 to 1.3367. This rapid acceleration pushed down inflation at a time when oil prices tumbled, giving the ECB plenty of room to delay an interest rate hike. As much as foreign exchange traders like to see higher yield, central banks do not, especially for a region that is still struggling to grow. Each rate hike tightens the economy and crimps growth. The latest drop in Euro will still validate another rate hike in March, which may explain why ECB members still feel that rates remain accommodative. Meanwhile Switzerland reported improvements in both retail sales and the ZEW survey of analyst sentiment. Consumer spending increased by 3.3 percent in the month of November while the ZEW survey rose from -23.7 to -10.8. This gives the Swiss National Bank reason to lift interest rates again despite muted inflationary pressures.
