Euro Falls on Weak Economic Results in France and Germany

The euro fell against the U.S. dollar and the Japanese yen on Friday, after France and Germany posted more disappointing news. At the moment, the euro is trading at $1.4471 against the U.S. dollar, or 0.262% below yesterday's close. At the same time, the euro fell 0.618% against the yen to trade around ¥115.88. Traders quickly lost confidence in the European currency after Germany posted weaker inflation data and France reported its industrial output had shrank in April. According to Federal Statistics Office, Germany's consumer price index remained flat in May compared to April. On an annual basis, the German consumer price index rose 2.4%, the first time the annual inflation had decreased in eight months. Analysts were caught off-guard by Germany's wholesale price index data. Federal Statistics Office reported Germany's wholesale price index remained flat in May, compared to a month earlier. On an annual basis, wholesale prices rose 8.9%, however. Decelerating inflation in the Eurozone powerhouse will put less pressure on the European Central Bank to start raising its interest rates. In Thursday's session, the ECB decided to leave its interest rates on hold, but has hinted it is prepared to start raising interest rates in July in order to curb inflationary pressures in some of its member countries. For the whole Eurozone, inflation stood at 2.7% and the ECB had raised this year's price inflation forecast from 2.3% to 2.6%. The euro was under more pressure following a bitter disappointment of the French industrial production data. According to Insee, France's industrial production shrank in April by 0.3% on a month earlier, due to a fall in energy production. The April manufacturing output data was more encouraging, however, as the manufacturing output rose in April by 0.2% after a 1.1% fall in March. When the ECB meets in July, it will have to balance the needs of faster growing members, which are fighting inflationary pressures, with the needs of the debt-ridden members, which could be forced deeper into debt crisis by rising interest rates. Beyond doubt, a compromise between these opposing interests will be hard to find. Economic deterioration in the second largest Eurozone economy will strengthen the case for maintaining interest rates on hold, however. Though Portugal and Greece will be thrilled by such developments, the value of the euro might suffer, especially as many traders have come to believe the rise in the Eurozone interest rates will come very soon. One of those countries that would be eager to see an interest rate rise is Austria. This small member of the Eurozone "center" has a very healthy economy at the moment. On Friday, WIFO reported the Austrian economy grew by 0.9% in the March quarter, compared to the last quarter of 2010, a slight downward revision form its initial estimate of a 1% growth. The Austrian economy was propelled by booming exports, which rose 2.6%. Traders who believe the ECB will start raising interest rates as soon as July, in spite of worrying signs that the French and the German economy are weakening, will be interested in the CurrencyShares Euro Trust ETF FXE, the EUR/USD Exchange Rate ETN ERO and the Market Vectors Double Long Euro ETN URR. Other traders might think that economic deterioration in some member countries which form a part of the Eurozone "center", above all in France and Germany, will persuade the ECB to leave its interest rates on hold, removing any tailwind from the euro. These traders will be interested in the Market Vectors Double Short Euro ETN DRR. Some traders will be worried by possible negative consequences of an interest rates hike. Rising interest rates might push the value of the euro higher in the short run. It could, however, push Portugal, Greece and maybe even Spain into bankruptcy. These traders will see the long term effects of any interest rate rise as negative and will be interested in the ProShares UltraShort Euro ETF EUO.