During early deals on Wednesday, the Czech koruna declined against the European currency and the US dollar as the Czech government lost a confidence vote in the parliament, thus making it the third Eastern European country to face political turmoil in the middle of economic crisis.
Prime Minister Mirek Topolanek, who leads a three-party coalition government, lost the vote by 101 out of 200 MPs following the defection of four government members as the Czech economy heads toward a recession and his spending plans are under pressure.
The Czech government will be the third to collapse in the region. Over the weekend, Hungary's prime minister offered to resign, saying he had become an obstacle to much-needed economic reforms. In February, Latvia's government collapsed in the face of popular anger over its handling of the economic crisis.
Against the European currency, the Czech koruna edged down to a 15-day low of 27.3810 during Wednesday's early deals. This may be compared to Tuesday's closing value of 27.1260. If the Czech koruna falls further, 27.8 is seen as the next target level.
The euro strengthened today despite a report showed that German business confidence fell to a record low in March. A monthly survey from the Munich-based Ifo Institute for Economic Research showed that German business confidence deteriorated to 82.1 in March from 82.6 in February. This was the lowest reading since the survey began in 1991. The expected level for March was 82.2.
The index measuring current situation worsened to 82.7 in March from 84.3 last month. However, the index stood above the expected reading of 82.5. On the other hand, the expectations index rose to 81.6 from 80.9 last month. Economists were expecting a reading of 81.5 for March.
In addition, Italy's economic think tank ISAE said consumer confidence in the economy declined in March after rising in past two months. The consumer confidence index fell to 99.8 in March from 104 recorded in February. Economists had forecast the reading to decline to 103.
The koruna, which fell to a 3 1/2-year low against the euro on February 17th, strengthened 8% thereafter as the central bank policy makers signaled possible interest-rate increases, world finance chiefs pledged to double International Monetary Fund reserves and the EU agreed to boost a credit line for member countries in financial distress.
However, after hitting a 2-month high of 26.3130 on March 13, the koruna weakened. Thus far, the Czech currency has lost 4%.
The Czech currency slipped to a 6-day low of 20.3790 against the US dollar at 5:05 am ET Wednesday. The next downside target level for the Czech koruna is seen around 21.5. The dollar-koruna pair closed Tuesday's New York deals at 20.15.
The Czech koruna that rose to a new multi-month high of 19.3560 against the greenback early this week has dropped around 5% since then.
The Czech cabinet is expected to stay on until the country's controversial eurosceptic president, Vaclav Klaus, appoints a new administration or until after new national election.
The Czech PM had been expected to represent the EU at next week's G20 meeting in London before playing host to Mr Obama in Prague for a symbolic meeting next weekend to mark the 20th anniversary of the fall of the Berlin Wall.
Traders now look forward to the New York session, in which the US Commerce Department is set to release its durable goods orders report at 8:30 am ET. Economists look forward to a 2% decline in the durable goods orders for February.
At 10:00 am ET, the Commerce Department is due to release its new home sales report for February. The consensus estimate calls for a decline in new homes sales to 300,000.
The Energy Information Administration is scheduled to release its weekly petroleum inventory report at 10:30 am ET.
Cleveland Federal Reserve Bank Sandra Pianalto is due to deliver a speech on forces for economic recovery Regional Growth Partnership luncheon in Maumee, Ohio at 12:20 pm ET. Meanwhile, San Francisco Federal Reserve Bank Janet Yellen is scheduled to deliver a speech to the Forecasters Club of New York on the U.S. economic situation and policy responses in New York at 12:30 pm ET.
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