PPI prices rose 0.7% on a month over month basis and although energy costs were responsible for the bulk of the gain, ex-energy prices still increased a substantial 0.3% or 3.6% on a annual basis.
Furthermore tonight's comments by ECB chief economist Issing that the central bank cannot ignore the liquidity build up in the 12 member region suggested that the ECB intends to be very proactive in managing inflationary pressures and will likely continue its tightening campaign for the rest of the year.
The EUR/USD has been the primary beneficiary of this shift in sentiment as traders now expect the Fed to terminate its hikes at 5% making only two further increases while ECB is projected to move four more times to 3.5%. The anticipated narrowing in interest rate differentials between the euro and the greenback has been the primary driver for the EUR/USD rally last week.
Today, the focus will turn to the US LEI data which is expected show a decline for the first time in four months as well Chairman Bernake's remarks to the Economic Club of New York later in the day. Traders will be keenly watching for any signal from the Fed Chairman regarding future monetary policy moves.
Any hint of dovishness from Dr. Bernake could push the pair above the 1.2200 level on momentum buying.
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Euro Holds the Highs
- Monday, March 20 - 2006 at 15:58
The euro traded near the highs of last week's rally as German Producer Prices surged for the third straight month in a row rekindling inflation worries in the Euro-zone and confirming ECB concerns about excess liquidity.
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Boris Schlossberg, Senior Currency Strategist, Daily FXMonday, March 20 - 2006 at 15:58 UAE local time (GMT+4)
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This article was updated on Tue Mar 21 2006.
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