Euro Climbs to Record High by Korman Tam

The single currency jumped to another fresh all-time high against the greenback despite a softer than expected reading from Germany’s Ifo sentiment survey. The euro continues to benefit from fears of further deterioration in US economic fundamentals, and now sets its sights on the next key psychological resistance at the 1.42-level. Moreover, the outlook for interest rates between the Fed and the ECB also remains favorable for the euro, with the FOMC likely to further ease policy while the ECB is seen tightening by at least 25-basis points before the end of the year.

ECB Board member Liebscher reinforced the economic strength of the Eurozone. Despite the prevailing downside risks, Liebscher said the Eurozone economy is in a good state and that the economic expansion remains dynamic. Meanwhile, the ECB’s Garganas sounded a hawkish tone, suggesting that “upside risks to price inflation dominate any effects stemming from the appreciation of the euro”. He deems the main drivers of Eurozone inflation are domestic, but added that it was appropriate to await more information prior to taking additional action. Garganas also added that the primary impact of recent market turbulence would be higher risk perception and would otherwise not affect the main scenario.

Germany’s Ifo sentiment survey was lower than forecast, with the business climate index falling to 104.2, compared with calls for 105 and down from 105.8 a month earlier. The current conditions component slipped to 109.9, versus estimates for a smaller decline to 111.0 from 111.5, while the expectations index dropped to 98.7 and down from 100.4. The Ifo said that the initial signs of “brake to growth” emerging and that the retail sector climate has deteriorated considerably. However, it added there was no strong impact on export expectations from a stronger euro. The Ifo’s chief economist Nerb believes that the German business climate has been impacted by the market turbulence and foresees a softening in the Germany economic rebound rather than an end.

Eurozone economic data over the coming sessions will reveal further clues into the state of the region’s economy. The reports will include Eurozone money supply, Germany’s September labor report, Eurozone sentiment surveys, and the September Eurozone HICP.