The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2765 level and was capped around the $1.3030 level. The U.S. dollar’s ascent continued and the common currency reached its lowest level since mid-December. Data released in the eurozone today saw the January EMU-15 PMI services index improve to 42.5 from 42.1 in December, above estimates but still at a contractionary level. These data upped the chances the European Central Bank will cut interest rates again in March and it is too soon to know if the eurozone services sector has reached rock bottom. Germany reported it may lengthen the tenor of state guarantees for bank loans to five years but will not nationalize banks’ toxic assets. One problem that is currently causing the euro to depreciate involves the various amounts of member countries’ exposure to toxic assets and credit spreads that have become more divergent following the recent downgrade of Greece and Spain. Also, the lack of an institutional framework at the European Union level means individual countries are able to react more efficiently regarding fiscal stimuli and other easing measures. ECB member Bini Smaghi reported there is little room to reduce the nominal interest rate below its current 2% level absent evidence of deflation. The flash German composite output index for January fell to 38.0 from 39.5 in December. Also, German November construction orders slumped 17.4% y/y and French firms’ business confidence remained in January at a record low of +73. In U.S. news, Treasury Secretary nominee Geithner may be confirmed by the Senate and General Electric warned of a very difficult period ahead in 2009. U.S. equity markets remained under pressure amid growing speculation another wave of support from the federal government for troubled banks may soon be required. Euro bids are cited around the US$ 1.2475 level.
Join the Discussion