Eurozone to Decide Over either Holding or Increasing Stimulus

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Eurozone to Decide Over either Holding or Increasing Stimulus
Eurozone to Decide Over either Holding or Increasing Stimulus

Eurozone to Decide Over either Holding or Increasing Stimulus

With the European Central’s bank balance sheet seeing the lowest drop in its two years record, nearly 30% since its peak in mid-June 2012, the euro is looking very steady in such a stable financial market. However, the conditions are yet robust despite of the steady stimulus programs running from key counterparts, giving speculating to a more rate hikes.

Meanwhile, the euro saw stability against the dollar weakened by disappointing figures on private employment in the United States, where the market remained cautious on the eve of a decision of the European Central Bank (ECB).

The Market Graph

The euro bought 1.3533 dollars, against 1.3515 dollars around 2200 GMT Tuesday.
The euro stabilized against the Japanese currency to 137.30 yen against 137.36 yen Tuesday evening.

The dollar lost some ground against the Japanese currency to 101.45 yen against 101.64 yen late Tuesday. Traders advanced groping late Wednesday in New York trade on the eve of a policy decision Money of the European Central Bank (ECB), and after a round of mixed economic indicators on both sides of the Atlantic.

The euro gained some ground after the announcement of the resumption of private sector activity in the euro area, which recorded its strongest growth in January for two and a half years. However, the decline in retail sales, which fell sharply in December in the euro area, decreasing 1.6%, “emphasizes the expectations of an ECB reaction Thursday, or by changing posture or by the adoption of monetary easing measures,” said Eric Viloria.

Wells Fargo’s announcement last week of a new unexpected slowdown in January of inflation in the euro zone had increased fears of deflation, increasing the pressure on the ECB who might be tempted to lower interest rates again. A further rate cut would make the euro less profitable and thus less attractive to speculative investors.

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Dollar was however hit by news of a sharper than expected job creation in the private sector in the United States decline. The private sector has created 175,000 new jobs last month against 227,000 in December. These figures were likely to fuel nervousness traders before the official monthly report on employment and unemployment in the world’s largest economy whose publication is scheduled for Friday.

Traditionally, traders dissect these figures for clues on official data published two days later. But the numbers of private employment in December had not anticipated the fall in employment. Indeed, the employment figures in the U.S. for December were surprised by their weakness, feeding fears of a slowdown in economic recovery in the country.

Data on employment are particularly scrutinized by traders because the Fed determines a possible increase in interest rates to a marked improvement in the labor market and especially a significant decline in the unemployment rate. Massive liquidity injections by the Fed in the U.S. financial system are designed to stimulate the recovery of economic activity, but also collateral effect of diluting the value of the greenback. Thus reduction of these measures makes it more attractive to speculative investors’ dollar.

Moreover, traders digested the stronger than expected in January of activity in the services sector in the United States progression. Around 1900 GMT, the British pound fell against the euro at 82.87 pence per euro, as against the dollar at 1.6308 dollar per pound. The Swiss franc fell slightly against the euro at 1.2228 Swiss francs to the euro, and stabilized against the dollar at 0.9035 Swiss francs to the dollar. Chinese currency finished at 6.0602 Yuan against one dollar for 6.0613 Yuan yesterday. Ounce of gold finished at 1,254.50 dollars at auction Tuesday night against 1250.25 dollars.

To contact the reporter of this story: Jonathan Millet at john@forexminute.com