RTTNews - Tuesday during early deals, the euro slumped to multi-day lows against its major counterparts after a report showed that Germany's gross domestic product posted its sharpest decline since records began in 1970 on weak investment activity and a sharp drop in net exports.
The German economy contracted 3.8% on a sequential basis in the first quarter, the Federal Statistical Office said in a detailed report today. The first-quarter drop in GDP marked an unprecedented fourth successive quarterly contraction for Germany's economy.
In the fourth quarter of 2008, the gross domestic product had slipped 2.2%. Compared with the first quarter of 2008, GDP decreased a price-adjusted 6.7% in the first quarter of 2009, much larger than the 1.7% drop seen in the fourth quarter. When calendar-adjusted, the economic performance went down 6.9%.
Commenting on GDP data, Ralph Solveen an economist at Commerzbank said he expects investment in machinery and equipment to continue its downward trend over the remaining part of this year. Further, he assessed that the stimulus initiated from monetary policy would be felt at the turn of the year.
Elsewhere, a consumer climate survey by market research firm GfK Group revealed that German consumer sentiment remained unchanged in May amid the economic crisis. The survey's forward-looking overall indicator showed a value of 2.5 points for June, matching May's reading.
Economic expectations improved slightly for the second month in a row. The corresponding indicator showed a reading of minus 28.3 points in May, up 2.9 points from previous month.
While policy makers have expressed optimism that the world recession may be easing, any recovery is likely to be slow. The global economy will shrink 1.3 percent this year and only return to growth in 2010, the International Monetary Fund said.
But there are signs of stabilization. European confidence in the economic outlook increased for the first time in 11 months in April and the recession in the region's manufacturing industry eased for a third month in May.
Germany's benchmark DAX Index has gained 18 percent since the beginning of the second quarter after declining 15 percent over the previous three months, reflecting increasing optimism among investors and executives.
European Central Bank council member Axel Weber said yesterday that while rays of light are positive, there's no reliable indication that the global economy is past the worst. The euro-region economy may only gradually stabilize during the latter part of 2009, he said.
The European stock markets opened lower today, which also hurt the European currency.
The euro, which closed yesterday's trading at 1.4014 against the dollar, fell to a 4-day low of 1.3931 during early deals on Tuesday. The next downside target level for the euro-dollar pair is seen at 1.383.
The euro-dollar pair gained 4% last week following some encouraging economic reports from Europe including an unexpected Euro-zone trade surplus, German investor confidence jumped to a 3-year high in May and the Euro-zone PMI rose more than expected in May.
The dollar remained under heavy selling pressure after Standard & Poor's cut its outlook on Britain's sovereign rating from stable to negative on May 21, sparked worries that a similar move could come for the United States.
The euro-dollar pair soared to a new multi-month high of 1.4052 on Friday afternoon. However, the pair lost ground in late Friday deals and extended its downtrend this week.
Following news that North Korea conducted a nuclear weapons test yesterday for the first time since October 2006, investors sold stocks and higher-yielding currencies, bolstering demand for the safe-haven greenback.
In early trading on Tuesday, the euro slipped to a 4-day low of 131.75 against the yen. This may be compared to Monday's closing value of 132.91. If the euro-yen pair weakens further, it may test support around the 129.9 level.
The yen is showing strength this week as the Bank of Japan raised its assessment of the world's second largest economy. In its latest Economic and Financial Developments Report published yesterday, the central bank said economic conditions in Japan have been deteriorating, but exports and production are beginning to level out. Last month, the central bank noted significant deterioration in economic activity.
In addition, Japan's Cabinet Office also raised its economic assessment for the first time in three years in its latest monthly report. The government said, While the economy is in a difficult situation, the tempo of worsening has become moderate.
The euro dropped to a 5-day low of 1.5161 against the Swiss franc in early deals on Tuesday. On the downside, 1.510 is seen as the next target level for the European currency. At yesterday's North American session close, the euro-franc pair was quoted at 1.5180.
The Swiss Federal Statistical Office announced today that the employment increased 0.8% year-on-year in the first quarter, slower than the 1.6% in the previous quarter. Economists were looking for a decline of 0.1%.
Meanwhile, the UBS said its consumption indicator for Switzerland fell slightly to 0.92 in April from 0.99 in March, resuming the downtrend after a rise in March. The indicator has thus remained below its long-term average of 1.50 for seven months.
The euro has been in a downward channel against the franc after it reached a new multi-week high of 1.5237 on Friday. Since then, the euro-franc pair has lost 0.4%.
During early deals on Tuesday, the euro declined to a 4-day low of 0.8776 against the pound. The next likely target for the euro-pound pair is seen at 0.8725. The pair was worth 0.8809 at Monday's close.
Looking ahead, the European Union's statistical agency Eurostat is slated to issue industrial new orders for March at 5.00 am ET. After falling 0.6% month-on-month in February, Eurozone new orders are forecast to rise 1%.
From U.S., the S&P/Case-Shiller home price index is scheduled to be released at 9 am ET today. Economists expect an 18.4% year-over-year decline in the 20-city composite house price index for March.
At 10:00 am ET, the Conference Board is scheduled to release its consumer confidence report for May. The survey, which is based on a survey of 5,000 US households, is expected to show that the consumer confidence index rose to 42 in May.
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