Friday during early deals, the euro plummeted to a 1-month low against the dollar after the European Central Bank President Jean-Claude Trichet said the central bank should do everything possible to restore confidence and support growth, leaving room for further interest-rate reductions.
Speaking at a conference in Tokyo today, Trichet emphasized the need for price stability. He stated that ECB policy was geared towards price stability and that such measures would also lead to financial stability as a whole. Nonetheless, he believes that inflation expectations are still firmly anchored.
The battered global economy faces a difficult year but will begin a recovery in 2010, Trichet said, as signs that the crisis was past its worst buoyed a broad rally in stock markets.
Confidence today relies equally upon the audacity of our immediate decisions and upon the soundness of our exit strategies, Jean-Claude Trichet said, adding that the ECB would decide next month on non-conventional ways to boost the economy.
The International Monetary Fund Managing Director Dominique Strauss-Kahn also predicted a recovery in 2010 after the global economy moved through deeply negative territory this year. He said governments in advanced economies needed to fix their financial sectors by cleaning banks' balance sheets of toxic assets, and had to be careful not to withdraw their fiscal stimulus measures prematurely.
While Trichet has signaled another quarter-point cut is likely next month, the Governing Council member of the European Central Bank, Axel Weber said on Wednesday that there is still a little room to cut the main refinancing rate, but it should not go below 1%.
In a speech in Hamburg, Weber said if the interest rate falls below 1%, banks will have no incentive to lend to each other, paralyzing interbank lending.
On April 2, the head of the European Central Bank hinted that policy-makers for the 16-nation currency could announce further non-standard policy measures in the next rate-setting session in May.
In comments following the bank's decision to cut its benchmark interest rate by a quarter percentage point to 1.25% earlier this month, Trichet also signaled that there is still room to cut the benchmark interest rate for Euro zone and said the world economy is undergoing a severe downturn.
Stocks across Asia rose today after a strong rally in the United States yesterday, with the banking and technology sectors boosted by stronger-than-expected results from JPMorgan and Google.
Emerging equities are at six-month highs, with a growing number of analysts saying the worst of the crisis may be over. But Bank of Japan Governor Masaaki Shirakawa said the country's economy is expected to continue deteriorating for the time being.
During early deals on Friday, the euro fell below the 1.3090 level against the dollar for the first time since March 18. The euro-dollar pair touched 1.3069 by about 12:20 am ET and this may be compared to yesterday's New York session close of 1.3190. If the pair weakens further, it may likely target the 1.290 level.
Better-than-expected results from Google and JP Morgan Chase, which were released yesterday, supported the U.S. currency.
Google Inc, the top U.S. Internet search company, added to a brighter outlook for the tech sector by announcing stronger-than-expected profits after the closing bell in New York on Thursday.
JPMorgan Chase, the No. 2 U.S. bank, also beat forecasts with its quarterly profits, bolstering hopes of stabilization in the financial sector.
However, U.S. Federal Reserve officials gave mixed signals yesterday, with the head of the Atlanta Fed forecasting a return to growth later this year, but the head of the San Francisco Fed warning of the potential for an even deeper contraction.
The Atlanta Fed's Dennis Lockhart told a conference in New York that the U.S. recession would end by mid-year, with growth slowly picking up in the following months.
But the San Francisco Fed's Janet Yellen said signs that some U.S. indicators were stabilizing did not mean that the economy was out of the woods.
A surge in equities on expectations of a recovery in global economy helped euro to gain 1.5% against the dollar on Monday. However, after hitting a 6-day high of 1.3393 in late New York session on Monday, the euro-dollar pair pared its gains. Dismal economic reports from Euro-zone in the subsequent days weakened the euro.
Euro zone industrial production fell at a record pace in February, while annual inflation in March dropped to an all-time low. A report from the Eurostat showed yesterday that industrial output fell 18.4% year-on-year in February after falling a revised 16% in January. The decline was slightly quicker than the expected fall of 18%.
In a separate report, Eurostat confirmed euro area annual inflation at 0.6% in March, which was the lowest rate since the launch of euro ten years ago. Consumer price inflation eased from February's 1.2% and 3.6% in the year-ago period.
The euro-dollar pair has lost 2.4% since reaching a 6-day high earlier this week.
The euro, which closed yesterday's trading at 130.87 against the yen, slipped to 129.97 in early deals on Friday. On the downside, 129.38 is seen as the next target level for the European currency.
Japan's service sector output was down a seasonally adjusted 0.8% on month in February, posting an index score of 105.6, the Ministry of Economy, Trade and Industry said today. The drop was worse than analysts' expectations for a 0.7% monthly decline following a 0.4% gain in January.
The euro-yen pair dropped 6% after it soared to a 5-1/2 -month high of 137.44 on April 06, to hit a 16-day low of 129.38 yesterday.
In early deals on Friday, the euro declined against the British pound. At about 12:20 am ET, the euro-pound pair touched 0.8797, down from Thursday's close of 0.8835. Thereafter, the pair reversed its direction and is currently trading at 0.8850 with 0.887 seen as the next target level
The euro-pound pair that jumped to a new multi-month high of 0.9499 on March 18 has declined more than 7% since then and fell to a 7-week low of 0.8789 on Wednesday.
The euro retreated to 1.5097 against the Swiss currency before bouncing back at 12:20 am ET Friday. As of now, the euro-franc pair is trading at a 3-day high of 1.5158, compared to Thursday's close of 1.5123. On the upside, the next likely resistance is seen for the pair at 1.525.
Switzerland's retail sales, Italian industrial orders, Euro-zone trade balance-all reports for the month of February are slated for release in the upcoming session.
Across the Atlantic, the Reuters/University of Michigan's preliminary report on the consumer sentiment index for April is due at 10 am ET. Analysts expect the consumer confidence index to show an increase to 58.5 in April from 57.3 in the previous month.
At 8:30 am ET, Kansas City Federal Reserve President Thomas Hoenig is scheduled to deliver opening remarks in Washington. Meanwhile, Federal Reserve Chairman Ben Bernanke is due to deliver a keynote speech at the Kansas City Federal Reserve Bank's conference on Innovative Financial Services for the Underserved at 12 pm ET.
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