4.4%: Germany’s Factory Orders growth in September falls short of 4.8% estimates

September brought a rise in Germany’s Factory Orders. Official figures released by the Federal Statistics Office on Thursday pointed to stronger momentum in the country’s manufacturing activity.

A 4.4% month-on-month increase in contracts for goods ‘Made in Germany’ in September fell short of the estimated 4.8% gain. The rise followed August’s 10.1% decline, revised from -10.6%.

On a year-over-year (YoY) basis, Germany’s Factory Orders increased by 3.3% in September. That compared with the previous rise of 3.2%, revised from 2.7%.

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Euro: Key Questions Answered

20 EU Countries Share the Euro

Used by the 20 European Union countries in the Eurozone, the Euro ranks second globally for trading activity, behind the US Dollar. 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 are EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

ECB Monetary Policy Shapes the Euro

Based in Frankfurt, Germany, the European Central Bank (ECB) serves as the Eurozone’s reserve bank, setting interest rates and managing monetary policy. Maintaining price stability is its core mandate, whether through controlling inflation or stimulating growth. Interest rate increases and cuts are its main policy instrument. The Euro usually benefits from relatively high rates or expectations of higher rates; the reverse also applies. Monetary policy is decided at ECB Governing Council meetings held 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.

2% Inflation Target Guides the ECB’s Response

The Harmonized Index of Consumer Prices (HICP), which measures Eurozone inflation, is a key economic indicator for the Euro. An inflation reading above expectations, particularly one exceeding 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 of its counterparts, the Euro usually benefits. Higher rates make the region a more attractive destination for global investors’ funds.

Economic Indicators Help Set the Euro’s Direction

The Euro can respond to data releases that reveal the economy’s health. GDP, Manufacturing and Services PMIs, employment figures and consumer sentiment surveys all have the potential to shape the single currency’s direction. Economic strength supports the Euro by attracting more foreign investment. It may also prompt the ECB to raise interest rates, directly strengthening the currency. Weak economic readings, by contrast, are likely to weigh on the Euro. Particular weight is attached to figures from Germany, France, Italy and Spain. These four largest euro-area economies represent 75% of the Eurozone’s economy.

Trade Balance Influences Demand for the Euro

The Trade Balance is another important release for the Euro, tracking the gap between a country’s export earnings and import spending over a specified period. Strong foreign demand for a country’s exports creates additional demand for its currency as overseas buyers seek to purchase those goods, lifting the currency’s value. A positive net Trade Balance therefore strengthens a currency, while a negative balance has the opposite effect.