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Germany’s Factory Orders rise 4.4% in September, falling short of 4.8% forecasts
September brought a rise in Germany’s factory orders, official figures released by the Federal Statistics Office on Thursday showed, pointing to gathering momentum in the country’s manufacturing sector.
A 4.4% monthly increase in orders for goods ‘Made in Germany’ in September followed August’s 10.1% decline (revised from -10.6%). The rebound fell short of the 4.8% increase forecast.
On a year-on-year (YoY) basis, German factory orders increased by 3.3% in September, compared with growth of 3.2% in the previous month (revised from 2.7%).
Euro Explained
Used by the 20 European Union countries that make up the Eurozone, the Euro ranks second only to the US Dollar among the world’s most actively traded currencies. Its share of all foreign exchange transactions reached 31% in 2022, with average daily turnover exceeding $2.2 trillion. An estimated 30% of all transactions involve EUR/USD, making it the world’s most actively traded currency pair. Next come EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
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. Interest rate increases and cuts are its main policy instrument. The Euro generally benefits when rates are relatively high, or expected to rise; the reverse also holds. Monetary policy is decided by the ECB Governing Council, which meets eight times a year. The decision-makers comprise the heads of the Eurozone’s national banks and six permanent members, among them ECB President Christine Lagarde.
The Harmonised Index of Consumer Prices (HICP), which measures Eurozone inflation, provides an important economic indicator for the Euro. An above-forecast rise in inflation, particularly beyond the ECB’s 2% target, requires the central bank to increase interest rates to bring price growth back under control. By making the region a more attractive destination for global investors’ funds, interest rates that are relatively high compared with those elsewhere will generally support the Euro.
The Euro can respond to economic releases because they offer a measure of the economy’s health. GDP, manufacturing and services PMIs, employment figures and consumer sentiment surveys can each help determine the single currency’s direction. Economic strength supports the Euro by drawing in foreign investment and potentially prompting the ECB to raise interest rates, which directly strengthens the currency. Weak figures, by contrast, are likely to weigh on the Euro. Particular attention is paid to releases from Germany, France, Italy and Spain, the euro area’s four largest economies, which together represent 75% of the Eurozone economy.
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, lifting the currency’s value. A positive net trade balance therefore supports a currency, while a negative balance has the opposite effect.
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