Falling commodity prices paired with the economic downturn in the region have helped to lower input prices for the fourth consecutive month, and as price pressures continue to alleviate, mounting risks for deflation could lead the European Central Bank to ease policy further in the months ahead as policy makers maintain a 2% target for inflation.
Fundamental Headlines
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EURUSD – Producer prices in Germany fell 1.2% in January, following a 0.8% drop in the previous month, which lowered the annualized reading for price growth to 2.0% from a revised reading of 4.0% in December. Falling commodity prices paired with the economic downturn in the region have helped to lower input prices for the fourth consecutive month, and as price pressures continue to alleviate, mounting risks for deflation could lead the European Central Bank to ease policy further in the months ahead as policy makers maintain a 2% target for inflation. Meanwhile, a separate report showed that German factory orders plunged another 8.0% in January after falling 7.6% in the previous month, while the annualized reading slipped to -37.9% from a revised reading of -28.2% in December, and conditions are likely to get worse as economists forecast Europe’s largest economy to face its worst economic slump since World War II. Discuss the topic and your trade ideas in the EUR/USD Forum.
GBPUSD – The trade deficit in the U.K. widened more than expected in January as demands for exports plunged 4.0% during the month. The visible deficit widened to GBP 7.745B from a revised reading of GBP 7.232B in December, while the trade gap outside of the European Union surged to GBP 5.704B from GBP 4.340B, which is the largest deficit since record keeping began in 1697. Deteriorating fundamentals paired with weakening trade conditions continues to foreshadow the dire state of the global economy, and conditions are likely to get worse as the International Monetary Fund expects Europe’s second largest economy to face its worst recession since 1946. Meanwhile, the Bank of England will begin purchasing GBP 2B in Gilts today through a reverse auction following the details of its quantitative easing policy release last week, and the extraordinary efforts by the central bank should help to mitigate the downside risks for growth as policy makers utilize all of their available tools to shore up the economy. Discuss the topic and your trade ideas in the GBP/USD Forum.
