Although there was good economic news for the Eurozone today, the region’s currency still tripped up, dropping slightly against both the US Dollar and Japanese Yen.
The Euro Exchange Rate was in the region of 1.3108 against the US Dollar as of 11:35 am GMT
Earlier today German unemployment was shown to have fallen by a seasonally adjusted 3,000 this month, defying economist’s forecasts for no change.
This latest development, when viewed in conjunction with improved investor optimism and consumer confidence in Germany, supports the Bundesbank’s recent assertion that the German economy (the largest in the Eurozone) will expand this quarter.
As one Munich-based economist said: ‘Investment, spurred by cheap money, is back helping drive the economy after being put on ice in the last quarter. The cumulative picture is good: Investors are looking at relatively healthy domestic demand underpinned by employment levels and are encouraged by a recovering export outlook.’
This report was soon followed by another which showed that inflation in the 17-nation currency bloc dropped to 2.0 per cent in January.
The decline from December’s level of 2.2 per cent was in line with both an earlier flash reading and economist’s predictions.
This result will give the European Central Bank the wiggle-room needed to contemplate a rate cut when it meets in March. Although a cut was widely unexpected to occur this year, the European Commission’s recent negatively-revised growth forecast for the Eurozone could alter the odds.
As JP Morgan stated: ‘We think recent developments are enough to prompt a policy response. A cut in the main refinancing rate is not the most powerful measure the ECB could implement, but it is a step in the right direction.’
The Euro was little changed immediately after this data was published as European pressures first prevented the currency from advancing against some of its peers and then saw it fall against others.
Upward movement in the common currency has been severely limited this week as a result of the uncertainty surrounding the Italian election result. Today, after the Netherland’s disclosed that its budget deficit will exceed the EU’s limit for the next two years, the Euro posted modest losses against the US Dollar and Yen.
Currency strategist Melinda Burgess comments: ‘The Dutch budget-deficit target forecasts look to be above the 3 percent EU target for this year and next and there are downgrade risks for the Netherlands around that. This adds further weight to our view that we should see further downside for the euro from here. Fiscal and growth worries in the region could really come to the fore.’
Until the political situation in Italy is resolved the Euro can expect to experience volatility. Additional Euro movement could also be caused by tomorrow’s German retail sales and Italian/Eurozone unemployment figures.
Current Euro Exchange Rates
As of 11:35 am
The Euro to Pound Sterling (EUR/GBP) exchange rate is trading in the region of 0.8634
The Euro to US Dollar (EUR/USD) exchange rate is trading in the region of 1.3108
The Euro to Australian Dollar (EUR/AUD) exchange rate is trading in the region of 1.2782
The Euro to New Zealand Dollar (EUR/NZD) exchange rate is trading in the region of 1.5783
The Euro to Canadian Dollar (EUR/CAD) exchange rate is trading in the region of 1.3424
The Euro to Japanese Yen (EUR/JPY) exchange rate is trading in the region of 120.74200
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