The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2905 level and was capped around the $1.3105 level. The common currency moved lower as demand for U.S. dollars continued to climb ahead of the presidential inauguration of Barack Obama. Additionally, there are increasing views that the eurozone will suffer a deep recession and these are taking their tool on the euro. Data released in the eurozone today saw the German December ZEW economic sentiment index improve to -31.0 from -45.2 in November. The pair is also suffering from yesterday’s European Commission forecast of a 1.9% contraction in the eurozone economy this year. Standard & Poors yesterday downgraded Spain’s credit rating following last week’s downgrading of Greece’s sovereign ratings. Many traders believe the European Central Bank will need to continue reducing interest rates below their current 2.0% level. European Central Bank member Constancio today intimated rates will move lower, noting ECB President Trichet last week said 2% (inflation) isn’t necessarily the limit. Constancio added we have to be cautious regarding the risks of inflation getting too low. Euro bids are cited around the US$ 1.3055 level.
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