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Climbing German inflation assures more interest rate increases for the Eurozone and a appreciating euro
04/28/2011 3:30 pm EST
According to numbers released today, April 28, Germany’s annual inflation rate climbed to 2.6% in April. That’s up from 2.3% in March and marks the fastest pace for German inflation in more than two years.
The European Central Bank isn’t about to let inflation climb this fast in the core economy of the European Monetary Union and the one politically most sensitive to inflation. April inflation data for the Eurozone as a whole will be released tomorrow, April 29. It’s expected that the numbers will show inflation steady at last month’s 2.9% annual rate. That’s well above the central bank’s inflation target of close to but not above 2%.
Now the only question is when the bank next raises its benchmark interest rate. (The European Central Bank raised interest rates by 0.25 percentage points to 1.25% earlier this month.) The bank’s governing council meets next week but the betting on the financial markets is that the next increase won’t come until June or July.
Needless to say (but I’ll say it anyway), news of higher German inflation has put more downward pressure on the U.S. dollar today. (With the Fed making it clear yesterday, April 27, that it doesn’t intend to raise U.S. interest rates before the end of 2011 (if then), the prospect of higher interest rates on the euro makes it the more attractive currency.) The Dollar Index dropped below 73 for the first time since July 2008 this morning. The all-time low on the index, which tracks the U.S. dollar versus a basket of currencies that includes the euro, the pound, the Swiss franc, the Swedish Kroner, the yen, and the Canadian dollar, is 70.68 on March 17, 2008.
The euro, on the other hand, climbed to $1.4888 overnight. That’s the euro’s high against the dollar since December 2009.