German Ifo reading unexpectedly drops in January. The headline reading fell to just 109.8 from 111.0 in the previous month, the lowest number since September. The decline was driven largely by a huge drop in expectations reading, which fell back to 103.2, the lowest since August and down from 105.5 in December. The current conditions indicator improved slightly to 116.9 from 116.7 in December. The breakdown showed that contrary to the improvement in the manufacturing PMI yesterday (January 24), the manufacturing reading in the Ifo actually declined, although this was in a broader downmove across all sectors. The overall reading still remains at high levels, consistent with ongoing growth, but at least the Ifo suggests that growth dynamics have slowed down somewhat at the start of the year.
The EUR came under pressure following the data and was also undermined by the ECB’s Lautenschlaeger who urged talks on “real” QE tapering. The German Executive Board member said “all preconditions for a stable rise in inflation exist”, adding that she is optimistic therefore “that we can soon turn to the question of an exit”. Draghi has stressed that the planned reduction in QE purchase volumes from April do not amount to “real” tapering, as they are not part of a planned exit strategy. Lautenschlaeger’s comments meanwhile urge the start of at least talks about a gradual winding down of asset purchases. She stressed that while current inflation is mainly driven by higher energy prices, “that doesn’t mean waiting until the last doubt about the return of inflation has been dispelled. It is rather a matter of not risking a reactio to a temporary inflation spike”.
EURGBP spiked down to 0.85275 within a few pips of my target of 0.85250 from my entry on January 18 at 0.8674.
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