Euro recovers despite weak data while confidence improves

03-31-2009 16:01

Rising risk appetite send the euro/ dollar above 1.3300 while the single currency recovered, after bearish fundamental figures pressured the euro slightly. The jobless rate rose to 8.1% as a result of the German unemployment that increased by 69,000 for the fifth month. The weak labor figures caused the change in sentiment, which was speeded up by the eurozone CPI forecast dropping to a record low. The fear for deflation will increase due to the outlook for consumer prices in March which fell from 1.2% to 0.6%. However, this does not guarantee that the ECB will take additional quantitative easing actions.

Deflation doesn’t worry ECB

The ECB still believes that deflation is not a serious threat for the eurozone, although consumer prices continue to drop below the 2% target. Jean-Claude Trichet, president of the ECB, declared yesterday: "We have to remain permanently alert but at the moment of speaking we don't see that risk substantiated". The pressure on the central bank is growing to take more rigorous measures, while European leaders become more concerned that the eurozone falls behind the curve, since Japan, the US and UK lowered their benchmarks rates close to zero. It is possible that world leaders will increase the need for more measures at the next G-20 meeting. Increasing risk appetite will continue to stimulate the euro and it remains high-yielding until the European Central Bank changes its point of view.

Confidence improved - US consumer confidence expected to increase

Traders look beyond the critical situation of the car industry and draw their attention to the prospects of the next G-20 meeting, as the dollar lost some of its yesterday’s gains. Confidence improved as a result of the remarks by US Treasury Secretary Tim Geithner that the member leaders are convinced of the need for additional regulatory actions and agreed on a broad based solution. Overall sentiment is increasing due to the various plans to stimulate the global economy, among others a future third Japanese attempt. In fact, Taro Aso, Japanese Prime Minister, officially applied for another package which probably includes at least ¥10 trillion ($102.83 billion) concerning tax cuts and expenditures. It is to be expected that rising optimism will affect the US consumer confidence reading, which economist expect to increase from 25.0 to 28.0. The dollar should find support as a result of the rising confidence, as risky currencies become more popular.