Friday morning in Asia, the euro remained under heavy selling pressure against its major counterparts as the European Central Bank said yesterday in its monthly bulletin that the world economy, including the euro area, is undergoing a severe downturn. The euro thus plunged to a new 1-month low against the pound, new 3-week low against the dollar and a 2-day low against the yen.
The April bulletin was identical to the introductory statement given by the ECB President Jean-Claude Trichet on April 2, after announcing the Governing Council decision.
Both global and euro area demand are likely to remain very weak over 2009, before gradually recovering in the course of 2010, the bulletin said.
Available indicators of inflation expectations over the medium to longer term remain firmly anchored in line with the Governing Council's aim of keeping inflation rates at levels below, but close to, 2% over the medium term.
A cross-check with the outcome of the monetary analysis confirms that inflationary pressure has been diminishing, the ECB said.
Regarding fiscal policies, the ECB said, it is necessary that countries' commitments to a path of consolidation in order to return to sound fiscal positions are credible, respecting fully the provisions of the Stability and Growth Pact.
The euro, which closed yesterday's trading at 1.3165 against the dollar, fell to 1.3091 during early Asian deals on Friday. This set the lowest point for the European currency since March 18. On the downside, 1.30 is seen as the next target level for the euro-dollar pair.
In early Asian deals on Friday, the euro declined to a new 1-month low of 0.8955 against the pound. This may be compared to yesterday's closing value of 0.8970. If the euro-pound pair weakens further, it may test support around the 0.881 level.
To pull the slumping UK economy out of recession, the Bank of England maintained its key interest rate at record low, as expected, and decided to continue its asset purchase programme.
At the end of two-day rate setting meeting yesterday, the Monetary Policy Committee of the Bank of England decided to hold the interest rate at 0.5%. The interest rate now stands at the lowest level since the central bank was established in 1694. The BoE maintained the rate after slashing it for six straight months from 5% in September.
The MPC also decided to continue with the GBP 75 billion asset purchases programme utilizing the central bank reserves in order to boost lending. The central bank said it would take another two months to complete the asset purchase programme. Since its previous meeting a total of just over GBP 26 billion of asset purchases had been made, the MPC said.
The euro slipped to a 2-day low of 131.57 against the yen in early Asian deals on Friday. The next downside target level for the euro is seen at 131.00. At yesterday's close, the euro-yen pair was quoted at 132.18.
The Bank of Japan board members suggested that growth estimates for the Japanese economy may require a downward revision, minutes from the March 17 and 18 monetary policy meeting revealed today.
The board members agreed that financial tensions are increasing again, the minutes showed, emphasizing the need for continued substantial liquidity. There remains significant uncertainty about the timetable for recovery, the minutes showed.
During early Asian deals on Friday, the euro dropped to 1.5196 against the Swiss franc. The near term support level for the euro-franc pair is seen at 1.512. The pair closed Thursday's North American session at 1.5223.
Looking ahead, the French CPI for March and the industrial production report for February are expected at 2:45 am ET.
Most markets across the world are closed today in observance of Good Friday.
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