Germany's Industrial Production beats 0% estimates with a 0.7% MoM rise in September

A 0.7% monthly increase in industrial output was recorded in September in the Eurozone’s economic powerhouse, according to figures released on Wednesday by the federal statistics authority Destatis and adjusted for seasonal and calendar effects. The result exceeded expectations of 0%, following August’s 1.0% increase, revised from 2.0%.

September’s industrial production in Germany was 0.4% higher year-on-year (YoY), following annual growth of 0.7% in August, revised from 2.3%.

Euro Explained

The Euro Serves as the Eurozone’s Single Currency

Used by the 20 European Union countries within the Eurozone, the Euro ranks behind only the US Dollar in global currency trading. Its share of all foreign exchange transactions reached 31% 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 come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB Monetary Policy Influences the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and overseeing monetary policy. Maintaining price stability is the ECB’s principal mandate, whether through containing inflation or supporting growth. To achieve this, it primarily raises or lowers interest rates. The Euro usually benefits when rates are relatively high, or expected to rise; the reverse also applies. Monetary policy is decided by the ECB Governing Council at eight meetings each year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.

Inflation Figures Shape the Euro’s Outlook

Measured using the Harmonised Index of Consumer Prices (HICP), Eurozone inflation is a key economic indicator for the Euro. A stronger-than-expected rise in inflation, particularly above the ECB’s 2% target, obliges the central bank to increase interest rates to regain control of price pressures. When the region’s interest rates are relatively high compared with those elsewhere, the Euro usually benefits, as global investors find the region a more attractive destination for their funds.

Economic Releases Help Determine the Euro’s Direction

By revealing the economy’s health, data releases can affect the Euro. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys are among the indicators capable of steering the single currency. Economic strength supports the Euro by drawing in more foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Conversely, weak economic readings are likely to weigh on the Euro. Particular attention is paid to data from Germany, France, Italy and Spain, the euro area’s four largest economies, which together represent 75% of the Eurozone’s economy.

Trade Balances Influence Demand for the Euro

The trade balance is another important release for the Euro, showing the difference between a country’s export earnings and its spending on imports during a specified period. Strong overseas demand for a country’s exports creates additional demand for its currency as foreign buyers seek to purchase those goods, increasing the currency’s value. A positive net trade balance therefore strengthens a currency, while a negative balance has the opposite effect.

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