eur fundamentals

Euro Rockets Higher as ECB's Weber Signals Interest Rates at Floor

Tuesday, 23 June 2009 21:12:07 GMT  |  Terri Belkas, Currency Strategist

The euro gained against most of the majors, surging over 1.5 percent against the US dollar and breaking above falling trendline resistance at 1.3960. The currency starting making headway during the European trading session, as Markit Economics released flash readings of their purchasing managers' index (PMI) for the Euro-zone's services and manufacturing sectors, yielding mixed results for the month of June. Services PMI fell slightly to 44.5 from 44.8 while manufacturing PMI rose to a 9-month high of 42.4 from 40.7, and these moves ultimately pushed the composite PMI reading up for the fourth straight month to 44.4 from 44.0. That said, composite PMI has held below 50 for 13 straight months, indicating that the Euro-zone economic contraction continues, albeit at a slower pace. At the start of the US trading session, European Central Bank council member Axel Weber said that the ECB has “used the room for rate reductions that was created by waning inflation risks and a dramatic worsening of the economic situation,” suggesting that interest rates have hit a floor. As a result, Credit Suisse overnight index swaps moved to price in a 63 percent chance of a 25 basis point hike in July, compared to 13.5 percent last Tuesday, which helps to explain some of the euro’s strength today. Ultimately, though, the ECB is highly unlikely to do something along these lines given downside growth and inflation risks for the region.

Related Article: Euro Weekly Trading Forecast

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