0.7% MoM rise in Germany's Industrial Production in September exceeds 0% estimates

Industrial output in Germany rose 0.7% month on month in September. Figures released on Wednesday by federal statistics authority Destatis for the Eurozone’s economic powerhouse were adjusted for seasonal and calendar effects. The increase exceeded expectations of 0%, following August’s 1.0% rise, revised from 2.0%.

September industrial production in Germany increased 0.4% year on year (YoY). This compared with growth of 0.7% in August, revised from 2.3%.

Euro: Key Questions

Euro: The Currency of 20 EU Countries

20 European Union countries share the Euro as members of the Eurozone. Only the US Dollar ranks ahead of it in global currency trading. The Euro represented 31% of all foreign exchange transactions in 2022, with daily turnover averaging more than $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most traded currency pair. Next are EUR/JPY at 4%, EUR/GBP at 3% and EUR/AUD at 2%.

ECB: Monetary Policy and the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank. Responsibility for setting interest rates and conducting monetary policy rests with the ECB. Price stability is its core mandate, requiring it either to contain inflation or support growth. Interest rate increases and cuts are its main policy instrument. Higher relative rates, or expectations that rates will rise, generally support the Euro; the reverse also applies. Monetary policy is decided by the ECB Governing Council, which meets eight times each year. The decision-makers comprise the heads of Eurozone national central banks and six permanent members, among them ECB President Christine Lagarde.

Inflation: A Key Driver of the Euro

2% is the ECB’s inflation target. Eurozone inflation, tracked through the Harmonised Index of Consumer Prices (HICP), is a key economic measure for the Euro. An unexpectedly strong rise in inflation, particularly above that target, obliges the ECB to increase interest rates to restore control. When the region’s interest rates are relatively high compared with those elsewhere, global investors find it more attractive to hold their money there. This generally supports the Euro.

Economic Data: Signals for the Euro

75% of the Eurozone economy comes from its four largest members: Germany, France, Italy and Spain. Their economic figures therefore carry particular weight. More broadly, data releases indicate economic health and can move the Euro. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys can all shape the single currency’s direction. Economic strength supports the Euro by drawing in more overseas investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak economic readings, by contrast, are likely to push the Euro lower.

Trade Balance: Surpluses and Euro Strength

Export earnings minus import expenditure over a specified period determine a country’s trade balance, another important release for the Euro. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, lifting its value. A positive net trade balance therefore strengthens a currency, while a negative balance has the opposite effect.

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