The EUR is trading near a two-month low against the Dollar on speculation the economic slump in Eastern Europe will cause the Euro-Zone’s recession to deepen, and markets are worried that Eastern Europe’s situation will get worse before it gets better.
The EUR was traded at 1.2852, up from 1.2849 late yesterday. It reached 1.2706 on February 2, the lowest level since December 5. The EUR also tumbled against the Dollar and the Yen after Fitch downgraded Russia’s long-term foreign and local currency ratings, sparking fears of a steep downturn in Eastern Europe. The European currency continues to have massive problems given the region’s association with Eastern European emerging markets as there are big Italian and German banks with large exposure there. Investors expect the currency to remain vulnerable for some time due to credit woes in Russia and Eastern Europe.
The EUR also weakened yesterday as the European Union’s (EU) statistics office in Luxembourg said retail sales fell 1.6% in December from a year earlier. Analysts say that in the Euro-Zone there is still a drip-feed of bad economic news, which is weighing on the EUR and keeping risk sentiment on the back burner. Data released earlier showed deterioration in Europe’s dominant services sector, and separate numbers showed Euro-Zone retail sales falling more than expected year-on-year in December. The EUR has also declined 1.6% to 88.76 against the British Pound after a report showed the U.K. services industry contracted less than forecast in January, and U.S. companies cut fewer jobs than previously expected.
Many economists expect, looking at the state of the Euro-Zone economy, another Interest Rate cut by the ECB this week. But even with low inflation expectations, Governing Council members have indicated that the ECB would not follow the U.S. Federal Reserve and the Bank of Japan (BoJ) in cutting rates to zero. With little room to cut Interest Rates, analysts are starting to look what else central banks have in store, especially whether the ECB would start to directly buy corporate debt.
© 2006 by FxYard Ltd
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