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FOREX-Euro falls as poor data feeds ECB rate cut expectations
March 4, 2013 / 1:41 PM / 5 years ago

FOREX-Euro falls as poor data feeds ECB rate cut expectations

* Euro near Friday’s 2-1/2 month low

* Shared currency hurt by weak euro zone data

* Growing bets on ECB rate cut this week

NEW YORK, March 4 (Reuters) - The euro remained near a 2-1/2 month low on Monday on rising expectations that euro zone economic worries could prompt the European Central Bank to cut interest rates sooner than previously anticipated.

Although a Reuters poll last week showed economists expected the ECB to keep rates on hold this Thursday, some strategists said euro weakness would persist on growing expectations bank chief Mario Draghi would hint at future cuts.

Poor euro zone sentiment and unemployment data since last week could compel the ECB to revise down its outlook for the currency bloc’s economy and consider earlier rate cuts, they said.

Data on Monday showed euro zone sentiment tumbled in March on renewed political uncertainty in Italy, the euro zone’s third largest economy.

Italy’s inconclusive election last week also weighed on the currency. Analysts are concerned that without a stable government, the country will be unable to pass reforms required to get its borrowing and debt under control.

“There has been increased talk of an ECB rate cut, with at least one investment house predicting it,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. “We are less sanguine. While the economic data has been soft, the ECB had anticipated weakness early in the year.”

The euro hit a session low of $1.2980, not far from a 2-1/2 month low of $1.2965 struck on Friday, after the euro zone Sentix data was released. The shared currency was last down 0.1 percent on the day at $1.3003.

Stop loss orders are cited below $1.2960 with reported option barriers at $1.2950, $1.2925 and $1.2900. A break below $1.2900 could take the euro towards its next support at $1.2844, its 200-day moving average at current prices.

Overall the outlook for the euro was glum and some analysts said poor euro zone services Purchasing Managers’ Index surveys on Tuesday and growth data on Wednesday could push the euro even lower if they fell below forecasts.

“The euro is down on a general risk-off mood ... Draghi could be more dovish and there could be a rate cut this week. If not, he could signal something is in the offing,” said Jane Foley, senior currency strategist at Rabobank in London.

DOLLAR STRENGTH

The weak euro zone data contrasted with a jump in U.S. manufacturing activity and this helped push the dollar to a six-month high of 82.509 against a basket of currencies on Friday. It last stood at 82.34, up 0.1 percent on the day.

Broad U.S. spending cuts that automatically kicked in on Friday and threaten to dampen economic growth have so far not hurt the U.S currency.

Spreads between two-year U.S. government bonds over their German counterparts have also moved in favour of the U.S., helping the dollar. Investors are expecting the Federal Reserve to slow its asset purchase programme later in the year as the U.S. jobs market shows signs of improvement.

“We’re turning bearish euro/dollar,” said George Saravelos, currency strategist at Deutsche Bank in London. “Even if Fed QE continues throughout 2013, U.S. two-year yields will turn up this summer and there’s little additional good news that can be priced into the euro.”

Investors discarded growth-linked currencies such as the Australian dollar after China announced measures to tighten curbs on the property market.

The Australian dollar fell to a near eight-month low of $1.0113 and was last down 0.6 percent on the day at $1.0143.

The dollar was down 0.1 percent against the yen at 93.52 yen.

Other central bank meetings and announcements this week include the Reserve Bank of Australia, the Bank of Japan, the Bank of Canada and the Bank of England.

The U.S. data highlight will be jobs data on Friday for February.

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