- Carsten Brzeski, senior economist at ING
Angela Merkel entered the second round of coalition talks with Social Democrats, as the main rival parties have their first agreements to form a government. Though politicians are moving closer in creation of a strong coalition, the economy is sending worrying signs. German unemployment soared to the highest since June 2011, suggesting German labour boom is faltering, even though the overall jobless rate remained around the lowest level since reunification more than 20 years ago. Moreover, inflation has eased further, reflecting weak domestic demand. The Labour Office said the number of German looking for a job increased by 2,000 to 2.973 million, outpacing analysts' expectations, who expected the reading to remain unchanged. The overall jobless rate, however, held steady at 6.9%, making it the envy of neighbouring Eurozone economy, where the corresponding indicator is several times higher. It seems that German labour market is not yet reacting to the improvement in the Eurozone, as companies are still refusing to step up on hiring. A gauge of consumer prices in Germany, rose only 1.2% in October, retreating from a 1.4% gain a month earlier.
Falling inflation and no signs of improvement in the labour market, may force Mario Draghi to cut the interest rate on November 7, to assure the recovery in the region will not be derailed. EUR/USD remains under pressure during the week, and is likely to stay so until the rate decision.
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