Decline of the Euro Continues

Monday, February 15, 2010

For the third week in a row, the Euro suffered heavy losses against its major currency counterparts in the Forex online market. The single European currency tumbled to a new 8 and half month low against the US dollar at last Friday’s closing, following the release of worse than expected German and Euro Zone GDP figures.

This unexpectedly weak economic data came at a particularly bad time for the 16-nation common currency, as European Governments continue to struggle to determine a solution for the Greece debt crisis, as well as stabilize financial market fears over the instability of the Euro, which have been driving the currency lower and lower.

After the EU economic summit, last Thursday, offered few details regarding its agreement to help Greece weather its financial crisis, the Euro struck $1.36880, tumbling 0.331% against the Greenback, from its opening price that day.

The 16-nation common currency slid as a statement issued by European leaders left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits.

Unfortunately these losses were not the last for the single bloc currency, as the Euro continued to plummet against its major counterparts throughout Friday. Europe string of alarmingly bad news began with Germany’s Prelim GDP, as the report showed that quarter-on-quarter growth was 0.0%, despite previous expansion in the two prior quarters GDP, and an optimistic previous expansion in the two prior quarters GDP, and an optimistic predicted forecast of a 0.2% increase. The German prelim GDP was followed by a disappointing Flash GDP for the entire Euro Zone. While analysts had predicted that that the Euro Zone’s Q4 GDP, would continue to increase by 0.4%, as it had done in the previous quarter, the single currency’s GDP came out just 0.1% higher. Fear that the Europe’s economic recovery had stalled, and may be beginning to falter sent the Euro tumbling another 0.423% against the US dollar- the heavily traded pair finished off the week at low of 1.3601.

While weak European figures sent the EUR/USD pair sinking to a record 8 and half month low, the USD continued to appreciate against its major counterparts.

January sales at the U.S retailers climbed more than anticipated, as retail purchases increased by 0.5%, the third gain in the past four months. However, despite an increase in the Monthly Retail Sales, the University of Michigan’s consumer sentiment index dropped to 73.7, falling short of analysts’ prediction of 74.8 and a prior level of 74.4.

Friday’s mixed release of economic data showed that while American’s have increased their spending in the retail sector, consumer confidence fell illustrating that the recovery of household spending may be gradual.

Over in the Pacific, the Aussie surged to a week high after the country’s jobless rate unexpectedly feel and the Chinese bank lending rate increased. The AUD closed at 0.88759USD, up almost 2.27% from last week’s open of 0.86783.

This Australian positive economic data fueled the AUD to increase against the Japanese Yen- the pair shot up 3.19% from Monday’s opening price of 77.356 to Friday’s close of 79.825.

Early tomorrow morning (0030gMT), Australia will publish the results of the Monetary Policy Meeting Minutes – after three consecutive increases in the interest rate, the late Australian rate decision disappointingly produced no rate hike. This report will explain why, and in no doubt will shake the Aussie.

Late last night, the Japanese government released two key economic indicators: the quarterly Prelim GDP and the yearly Prelim Price Index. Japan's economy expanded in line with expectations in the Q4 of 2009 – The Prelim GDP saw a growth of 1.1% in real terms from the July-September quarter, slightly better than expected 1.0% growth. The highly awaited Japanese Cabinet data also showed that GDP grew 4.6% on an annualized basis. Domestic demand added 0.6 percentage points to GDP growth in the latest quarter, while external demand -- exports minus imports --added 0.5 percentage points to growth. Additionally, the Prelim GDP Price Index, the broadest measure of prices in the economy, fell a record 3%. The Yen gained 0.133% following the release of these report, trading at 90.15USD from 90.03USD prior to the report.



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