Tuesday during early deals, the European currency declined to a 5-day low against the yen and the dollar as the euro-zone economy shrinked more than expected in the fourth quarter.
A final report from the Eurostat showed that the record contraction in the euro-zone economy in the fourth quarter was even sharper than initially estimated, fueling fears that it will take longer for the currency block to recover from recession.
The Euro-zone gross domestic product, or GDP, contracted 1.6% quarter-on-quarter in the final three months of 2008. The pace of decline was slightly up from the previously estimated fall of 1.5%. GDP fell 0.3% each in the third and second quarters.
The statistical office also revised fourth quarter annual GDP decline to 1.5% from an initial 1.3% fall.
The fourth quarter GDP are likely to increase concern that the recession will be far more deeper than expected giving room for the European central bank to ease the monetary policy further.
The euro also came under pressure amid fears of worse than expected first quarter earnings reports. Markets were at ease ahead of the first quarter earnings report which will kick-off today.
While lowering its key interest rate by 25 basis points to a new low of 1.25% last week, ECB President Jean-Claude Trichet signaled that there is still room to cut the benchmark interest rate for Eurozone and said the world economy is undergoing a severe downturn.
Recent economic reports released from the euro-zone economy pointed towards a deepening recession. Euro-Zone PPI dropped and the retail sales declines more than expected.
Eurozone retail sales volume dropped 0.6% in February from January, a report from the Eurostat showed Monday. Economists were expecting retail sales to drop 0.4% in February after rising 0.1% in January.
The Eurostat announced that Eurozone's producer price index dropped 1.8% year-over-year in February, after falling 0.7% in January. Economists were looking a decline of 1.5%. In December, producer prices were up 1.1%.
Against the Japanese currency, the euro has been extending its Asian session's downtrend during early European deals on Tuesday. As of now, the euro is trading at a 5-day low of 132.73 against the yen, compared to 135.52 hit late yesterday in New York. If the European currency slides further, 130.3 is seen as the next likely support level.
The euro pulled back against the currency of US during early deals and the pair thus fell to a 5-day low of 1.3251 by about 6:15 am ET. This may be compared to Monday's closing value of 1.3418. On the downside, the next likely target for the pair is seen around the 1.316 level.
The dollar and the yen soared today on the back of weak equities. Lower yielding currencies likely yen and the dollar will gain when the shares fall as they were seen as safe-haven in times of economic uncertainties. Negative comments from analysts on financial stocks, and lower commodity prices weighed on the markets ahead of the earnings season in the U.S, which will be kick started by Alcoa today
Today, the Bank of Japan retained its key interest rate and decided to expand the range of eligible collateral for its provision of credit to facilitate money market operations.
The Policy Board of the central bank unanimously decided to hold the uncollateralized overnight call rate at 0.1%. The decision came in line with economists' expectations.
The U.S. Federal Reserve is expected to release its monthly consumer credit report at 3 pm ET today. Consumer credit for February is likely to show a decline of $1.5 billion.
In January, consumer credit rose by $1.8 billion to $2.56 trillion, as revolving credit rose by $0.9 billion to $0.96 trillion and non-revolving credit rose by $0.8 billion to $1.6 trillion.
The euro is now trading at 0.9080 against the pound, down from early Asian session's 4-day high of 0.9117. The euro-pound pair closed yesterday's deals at 0.9086.
The pound slipped to new multi-day lows against its other major counterparts except against the euro as the manufacturing output declined for the 12th straight month in February. The BCCI survey also dragged pound down.
A quarterly Economic Survey from the British Chambers of Commerce confirmed that the UK recession is still very serious and expects it to continue for some time. The business lobby said there is a clear need for corrective action and urged the government to act forcefully to ease the recession.
UK industrial production declined 1% month-on-month in February, the Office for National Statistics or ONS said Tuesday. Economists had expected output to fall 1.2% in February, following a 2.7% decrease in January.
Year-on-year, production was down 12.5% in February, in line with economists' expectations.
The euro rebounded to 1.5216 against the Swiss franc by about 5:55 am ET, after having hit a 6-day low level of 1.5169 during Tuesday's early Asian trading. The pair may likely find its resistance near the 1.506 level, if it rises further. The euro-franc pair closed yesterday's deals at 1.5246.
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