Euro gains after inflation, German jobless data

January 7, 2014

Madrid-Spain  (Jan 7)   The euro firmed against the U.S. dollar Tuesday after data showed a pullback of euro-zone inflation, which could put pressure on the region’s central bank to act at its upcoming meeting this week. German economic data came in better than expected.

The euro   bought $1.3640, slightly up on $1.3631 seen late Monday in North America. The euro climbed above the $1.35 level on Monday, after a report from the Institute for Supply Management showed service-sector activity in the U.S. slowed in December

The pullback in the euro aided a push higher for the ICE dollar index . The gauge of the U.S. unit against a trade-weighted basket of six other currencies rose to 80.763 from 80.664. The WSJ Dollar Index , an alternate measure of the greenback’s strength, rose to 74.10 from 73.97.

German jobless claims in December fell 15,000 from November on a seasonally-adjusted basis, while the jobless rate remained unchanged at 6.9%, which is near a record low. The decline was a surprise for economists, who were expecting no change for December. Retail sales in Germany for November on a preliminary basis were also stronger than expected, indicating a strong Christmas sales season, said Heino Ruland of Ruland Research.

Meanwhile, the annual rate of inflation across the 17-nation euro zone fell further below the European Central Bank’s target in December, which may trigger fears that too little inflation, rather than too much, will pose a threat to the region’s recovery. It also puts some pressure on European Central Bank President Mario Draghi and his colleagues to act further to tackle deflation, said analysts. The central bank is scheduled to meet on Thursday.

“If inflation keeps edging lower, the likelihood of another cut to the refi rate or even negative deposit rates seem to be more pronounced than before,” said Ishaq Siddiqi, market strategist at ETX Capital. “The Fed may be bowing out of the stimulus game, but the ECB’s in for a tough grind to repair the euro zone and prevent an economic crisis from taking hold again.”

Meanwhile, the market may react to a speech scheduled for later Tuesday from Eric Rosengren, president of the Boston Federal Reserve, who last month was the only member of the Fed’s policy-setting committee to vote against cutting bond purchases.

Rosengren had said the move to start reducing stimulus in January was premature. San Francisco Fed President John Williams, who has backed the bank’s stimulus measures, is also slated to speak Tuesday

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