The European currency fell against the dollar and the pound during Thursday's early trading ahead of the European Central Bank's rate-setting meeting later in the day.
The euro slid on expectation of a quarter point rate cut to 1.00% and on fears that ECB may consider other measures such as buying debt to fight recession. The current interest rate of 1.25% is already the lowest level in the bank's history. Lower interest rates will make the currency cheaper and investors move funds to investment avenues which generate higher returns.
There is a strong felling that this would be the final cut in the current cycle, as the Governing council has already slashed the refinancing rate from 4.25% since last October.
Investors will also keep a close tab on what ECB president Jean-Claude Trichet has to say in a news conference, which is scheduled forty-five minutes after the announcement.
Some of the reports released from the euro zone region during last week supported expectations by some that the worst may be behind. The manufacturing and services purchasing managers indexes for the euro zone region came in better than expected, while a recent survey showed that sentiment among the euro zone investors rose to its highest level since October 2008.
However, there were disappointing tidings as well. The European Commission sharply lowered the GDP outlook for the euro area, with the 16-nation euro area now expected to contract 4% in 2009 and 0.1% next year. Eurozone retail sales fell at its fastest pace on record in March and Eurozone producer prices recorded the biggest annual fall in 22 years in March.
The euro edged down to 1.3262 against the US dollar during Thursday's early session. The immediate support level for the European currency is seen at 1.312. The euro-dollar pair closed Wednesday's deals at 1.3335.
The US Labor Department is due to release its customary jobless claims report for the week ended May 2nd at 8:30 am ET today. At the same time, the U.S. Labor Department is also scheduled to release its preliminary report on first quarter non-farm productivity and unit labor costs.
Treasury Secretary Timothy Geithner is scheduled to speak to the Chicago Fed's Conference on 'Bank Structure and Competition' in Chicago at 9 am ET. Half-an-hour later Federal Reserve Chairman Ben Bernanke is due to offer the opening keynote address at the Chicago Fed's Conference on 'Bank Structure and Competition' at. Bernanke's address is to be followed by a speech by FDIC Chair Sheila Blair at 1:10 pm ET.
The dollar moved lower Wednesday, as investors started to return to the stock market on hopes of a recovery in the near future. Yesterday's ADP report also lent optimism, with the report , showing that private sector employment showed a smaller-than-expected decline in jobs.
While the ADP report points to continued weakness in the labor market, it presents another sign that the economy is stabilizing and is likely to generate some optimism about the Labor Department's monthly employment report due to be released on Friday.
Against the Japanese yen, the European currency fell to 130.75 by about 12:00 am ET, before reversing direction. As of now, the euro is now trading at 132.46, compared to 131.12 hit late Wednesday in New York.
The yen is broadly lower against its major counterparts, as increased risk preference spurred investment in high-yielding assets, leading to a surge in carry trade activity.
Investors have been waiting with bated breath on the outcome of the stress tests which is due out at 5:00 pm ET today to know how much more capital banks might be required to raise in order to satisfy the new stringent capital requirements.
Bank of America Corp. is reported to be at the top of the list of banks believed to need more capital, as it is facing significant credit losses and a challenging combination with Merrill Lynch.
The higher-yielding currencies like Australian and New Zealand dollars surged today on better than expected labor-market reports.
On the economic front, the Bank of Japan said that the monetary base in Japan was up 8.2 percent in April, standing at 95.62 trillion yen following a 6.9 percent annual gain in March.
The euro, on the other hand, advanced to a 12-day high of 1.5160 against the Swiss franc by about 5:05 am ET. On the upside, the next likely target level for the euro is seen around 1.52. At yesterday's New York session close, the euro-franc pair was quoted at1.5088.
Against the UK currency, the euro fell to a 2-1/2 month low of 0.8767 by 2:20 am ET. If the euro slides further, 0.864 is seen as the next likely target level against the pound. The euro was worth 0.8812 against the pound at yesterday's close.
At 7:00 am ET, the Bank of England is due to announce the monetary policy rate for the month. The bank is expected to hold the rate at record low of 0.50%, for a second straight month. The Bank's Monetary Policy Committee has aggressively slashed the rate to pull the economy out of recession, which saw the rates tumble from 5.5% since October last year. With no room to cut rates, the MPC has focused on injecting 75 billion pounds through buying a series of assets, including government and company debt.
Before the ECB and BoE meetings, the German factory orders report for March is due at 6:00 am ET. Economists look forward to a 35.8% year-over-year decline and a 1% monthly drop in orders.
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