For European markets, Germany’s March inflation figure is likely to dominate today. It is forecast to hold at just 1.0 percent. The European Central Bank insists there is no threat of deflation in the currency area although the euro zone number has been in its “danger zone” below 1 percent for five months now.
Having appeared to set a rather high bar to policy action at its last meeting, this week the tone changed. Most notable was Bundesbank chief Jens Weidmann, normally a hardliner, who said printing money was not out of the question although he would prefer negative deposit rates as the means to tackle an overly strong euro.
That looked like a significant shift although he did stress there was no need for imminent action.
Has something changed? Certainly the currency seems to be focusing minds though it’s probably too early for anything dramatic at next week’s policy meeting. With inflation running at just 0.7 percent and the euro near $1.40 – buoyed by emerging market outflows – further currency appreciation would cut import prices in a way that will push inflation lower still.
Weidmann speaks again this afternoon.
China’s Xi Jinping has said little during his week travelling Europe but will hold a news conference with Germany’s Angela Merkel later in the day.
As we reported from sources yesterday, Frankfurt will become the first hub for yuan payment transactions in Europe with the German and Chinese central banks set to seal the deal today. That’s one in the eye for London which has been pushed hard as the yuan offshore trading centre by the British government and will sign its own agreement next week.