German PPI Numbers Support Optimism Towards the Economic Outlook

It was a quiet start to the day for the EUR/USD on the economic calendar. The German economy was in the spotlight again, with Producer Price (PPI) numbers for November in focus.

Following the prelim December private sector PMI numbers, the markets looked for softer wholesale inflationary pressures.

According to the December Composite PMI survey, input cost inflation fell for the third consecutive month to its lowest level since March 2021. Softer input prices led to slower increases in output prices that declined for the third successive month to the lowest level since August 2021.

Germany’s annual wholesale inflation rate softened from 34.5% to 28.2% in November. Economists forecast a rate of 30.6%.

According to Destatis,

• Compared with November 2021, energy prices continued to be the main contributor.
• Prices for non-durable consumer goods, intermediate goods, durable consumer goods, and capital goods also rose significantly.
• However, the development of energy prices contributed to a monthly fall in producer prices.
• Compared with October 2022, producer prices fell by 3.9%, following a 4.2% decline in October.
• Energy prices fell by 9.6% in November due to a fall in natural gas and electricity prices.

After the ECB upwardly revised inflation from 5.5% to 6.3%, the German wholesale inflation numbers could question forecasts and the hawkish bets on ECB. ECB members Luis de Guindos speaks today. On Monday, De Guindos talked about the need to continue raising interest rates.

EUR/USD Price Action

Ahead of today’s inflation figures, the EUR/USD rose to an early high of $1.06524 before sliding to a low of $1.05790.

Before the stats, the Bank of Japan’s announcement to change its target range for 10-year yields to 50 basis points sent the EUR/USD and riskier assets into negative territory. Previously, the 10-year yield range stood at a 25-basis point band from its 0% target.

In response to today’s German PPI numbers, the EUR/USD fell to a post-stat low of $1.05919 before rising to a high of $1.06006. While the inflation numbers were softer, German economic indicators are sending signs of improving economic conditions.

At the time of writing, the EUR was down 0.09% to 1.05984.

The US Session

House sector data for November will be in focus in the US session.

Mortgage rates and recession fears have adversely affected the housing sector this year. Another set of weak numbers could add further pressure on riskier assets.

Another fall in building permits and housing starts would further fuel fears of a recession as the Fed hawks dampen hopes of a Fed pivot. Following hawkish FOMC member chatter in the wake of the Fed policy decision, FOMC member commentary will need monitoring.