The euro began to rebound against the US dollar after slipping all morning following the release of German producer price data for September.
Prices in the eurozone’s most important economy rose by 0.3% compared to August, ahead of the expected 0.2% rise. EUR/USD rallied throughout the morning, which seems strange given that the news flow out of the EU summit seems to be less than positive. Last night’s eurozone mini-summit produced little of note, except to underline that the two biggest players in the drama, France and Germany, remain split over the correct approach to the problem. German officials have already begun to ‘manage down’ expectations, as markets worry that, once again, eurozone leaders will fail to meet their self-imposed deadline.
The risk is that the only thing produced by the summit is a general commitment to meet austerity measures, without any concrete resolution to the three-fold problems of Greece; the region’s banks; and how to make the EFSF go further, to cover larger economies such as Spain and Italy. US initial jobless claims came in at 403,000 for last week, where a reading of 400,000 had been expected, and this prompted some selling of EUR/USD. Ultimately though, the moves in EUR/USD over the next few days will be determined by the outcome of the eurozone summit.