Euro pairs rise

03-20-2009 15:45

At the start of the European trade session the euro had reached a 1.3728 level during the overnight trading, while earlier it had reached an intraday low of 1.3615. In February eurozone’s industrial production dropped by 17.3%; a record low versus last year. For the fifth straight month activity fell due to a decline in capital goods by 6.0% which resulted in a monthly fall of 3.5%. The single currency dropped by 50 bps following the release, which is a sign that the gloomy fundamental data influence the euro.

Eurozone’s recession deepens – Central banks continue rate cuts

Demand for action by the European policy makers increases as the eurozone’s recession continues to deepen and other central banks continue their easing policy by lowering their rates near to zero. The European Central Bank did not confirm the existence of a rescue plan that should prevent currency bloc members from going bankrupt. This statement was a result of the comments by Otto Bernhardt, a German politician, who said that “there is a plan” and “we won’t let anyone go bust”. The credit rating of countries such as Greece and Ireland have been downgraded which deteriorates their economic situation. If the present troubles get any worse the central bank may be forced to come up with new measures in order to protect the entire European Union.

Concerns of deepening recession increase

When European markets opened, the sterling reached a 1.4591 level, while volatility became dominant after Japanese trading sessions ended, which resulted in low volume during the Asian trading session. The pound has lost some of those gains due to the increasing fear for the recession worsening. According to BoE chief economist Spencer Dale, a deepening recession is still a serious threat, despite "a substantial amount of the total contraction we're going to see has come through". He also stated that the central bank may need to undo the present quantitative easing attempts in case of a returning inflationary pressure.

Dollar loses safe status – Bernanke’s predictions

The dollar has lost its safe status as a result of the money printing by the FED. Today’s speech by Chairman Ben Bernanke could influence risk sentiment as he may announce gloomy or positive prospects for the US economy. Still, it is likely that the comments will hardly influence the dollar due to the present momentum. Stock markets in Europe were stable while US futures show signs of a lower open which could boost the dollar.