“Eurozone GDP posts sharp contraction”
Yesterday was a day of consolidation in the currency markets and trading remained tight.
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PPI and jobless claims data from the US were slightly weaker than expected but not significant to swing the markets into dollar buying. In fact the Dow Jones improved yesterday following Wednesdays sell off.
A consolidation period for the markets will not be a bad thing in the light of the recent heightened volatility and market swings on future sentiment. Sterling performed well after dipping to test the 1.5050 level against the USD- this is a crucial support level for sterling to consolidate above the 1.50 level.
Today we have already seen the release of GDP data from Germany and the Eurozone. German GDP fell 3.8% in Quarter 1 of this year- a much sharper drop than the 3.0% forecast- this data initially encouraged selling on the euro. Later we had confirmation that the Eurozone economy has registered the largest quarterly drop since records began in 1995…the GDP drop was 2.5% in the 1st quarter and 4.6% for the year.
In addition we saw inflation data from the Eurozone remain low and it is expected to drop further in the near term- the annual rate was recorded at 0.6% which is the lowest since records began in 1996. This should heighten the call for a further rate cut by the ECB and a step up in the purchase of bonds to enhance liquidity. The euro since the data has actually strengthened back a little following earlier losses following the German data with EUR/USD moving to 1.3550 from 1.364.
We have US data later today in the form of CPI. On interest rates, we have the Mexican Central Bank meeting to set their interest rates for the coming month. Expectation is for a cut of 75 basis points to 5 1/4% but there is a chance of seeing a full 1% cut should their perception of the effects of swine-flu on the economy be more negative than had been thought by the market.
Yesterday the Turkish Central Bank cut their rates by 50 basis points (as expected) adding that further cuts may be measured but that it sees an easing trend for a considerable period.
Report by Phil McHugh, Corporate Foreign Exchange
The contents of this report are for information purposes only.
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