The euro moved lower vis-à-vis the U.S. dollar today as the single currency tested bids around the US$ 1.2510 level and was capped around the $1.2640 level. Several factors continue to plague the common currency. First, Eastern European markets remain in rough shape. Credit default swaps on some sovereign debt are at all-time highs with Hungarian CDS rates around 550bps. There is growing concern that western European banks may be forced to bail out their Eastern European subsidiaries. Second, there are lingering rumours that some countries may leave the eurozone, an assertion that German finance minister Steinbrueck flatly rejected as absurd today. Third, the European Commission criticized France, Spain, Ireland, Greece, Malta, and Latvia for their large budget deficits. Fourth, the German government reported The outlook for the current year remains strongly clouded for the time being. Current economic indicators signal that the decline of economic activities will continue in the first quarter of 2009. The world economic conditions continue to hurt. In addition, there are the increasingly direct consequences of the financial market crisis, in particular through a tightening of banks' conditions for companies' funding. Most traders believe European Central Bank will ease interest rates by at least 50bps next month. In U.S. news, January housing starts were off 16.8% while January building permits were off 4.8%. Additionally, the industrial production index fell to 101.3 while capacity utilization moderated to 72.0 from 73.3 in December. Also, it as reported the January import price index improved to -1.1%. Traders cite an increasing likelihood the Obama administration may nationalize some U.S. banks with Citigroup and Bank of America as two possibilities. Euro bids are cited around the US$ 1.2475 level.
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