The euro lost substantial ground vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2810 level and was capped around the $1.3070 level. Traders reduced long exposure to the common currency ahead of tomorrow’s European Central Bank meeting. Most dealers do not expect the ECB will reduce interest rates this month and see March as the most likely time for the next rate cut. Data released in the eurozone today saw the January PMI services survey improve to 42.2 from 42.1 in December while Germany’s PMI services reading fell to 45.2 from 46.6 in December. Also, EMU-15 December retail sales were flat m/m and off 1.6% y/y. In U.S. news, ADP data revealed private employers shed 522,000 in January, down from the revised 659,000 tally in December. These data suggest Friday’s January non-farm payrolls data may not be as bad as December’s print. Other data released today saw mortgage applications improved in the latest week. The Obama administration’s proposed fiscal stimulus is now approaching US$ 900 billion and Obama was forced to drop the protectionist Buy American caveat. Treasury Secretary Geithner will next week release details about the government’s plan to fix the banking system. A Group of Seven official said the G7 meeting of central bankers and finance ministers in Rome on 13-14 February will try to send some reassuring messages about the general economic situation and policymakers are unlikely to launch any new major initiatives. Euro bids are cited around the US$ 1.2475 level.
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