Euro Sinks On Worse-Than-Expected Inflation, Overlooks PMI Data

Talking Points:

• Soft German PPI Report Hurts the Euro on ECB Easing Speculation
• German and Euro-Zone PMI Data Yields Mixed Results in February
• Further Euro Losses May Be Ahead as Spotlight Turns to US CPI

 

German PMI data came in mixed as service-sector activity reached a 3-month high, but factory-sector activity fell for the second consecutive month. Similarly, the Euro-zone service PMI gauge rose to a 5-month high in February, but factory-sector activity fell to a two-month low. Euro-zone PMI Composite index missed expectations and fell to 52.7 (two-month low). The Euro dipped as the news crossed the wires, but the true market mover was a set of disappointing German inflation data released earlier in session.

The Euro sold off aggressively against most of its major counterparts as traders considered the implication on monetary policy after a disappointing German PPI report. The inflation gauge showed that month-on-month growth fell 0.1 percent in January, missing expectations calling for a 0.2 percent increase. Already pressuring the Euro lower was a set of hawkish FOMC minutes released early in the session boosting speculation that QE3 will fully be wound down as early as September, thus boosting demand for the US Dollar.

EUR/USD 1-Minute Chart. February 20, 2014