The Bundesbank has claimed property in some German cities is overvalued by as much as 20%, with demand outstripping construction. One of main the reasons is the current low interest rate, as investors seek a higher return, and the low cost of borrowing is making it cheaper to buy property. A certain amount of property speculation is good for an economy, but soaring property prices could lead to a property bubble which may put pressure on the banking system.
The German central bank also warned that Angel Merkel needs to hold her ground ahead of coalition talks this week. The Social Democratic party wants to boost spending on education and infrastructure, but Ms Merkel want to keep it unchanged.
Today is a light day in terms of economic data and we are not expecting any announcements from the eurozone or US. Dealers are now looking ahead to tomorrow’s delayed non-farm payrolls and unemployment report at 1.30pm (London time). If the report comes in worse-than-expected the euro could stage a rally.