eur fundamentals

Euro Bounces from Key Support Versus US Dollar, British Pound - May Prove Short-Lived

Wednesday, 07 January 2009 20:58:49 GMT  |  Terri Belkas, Currency Strategist

The euro bounced from support versus the US dollar and British pound on Wednesday, with EUR/USD continuing higher from yesterday’s test of 1.3311 while EUR/GBP drifted back above the psychologically important 0.90 mark following a late-morning drop to 0.8961. There was no fundamental drive behind the move, as economic data was broadly bearish. The German unemployment change rose for the first time in almost three years during December by 18,000, suggesting that consumption growth is likely to weaken substantially. Meanwhile, the Euro-zone producer price index plunged by 1.9 percent during the month of November, the sharpest decline since 1981, as lower commodity prices weigh on input costs. Given the decline in estimates for Euro-zone CPI below the European Central Bank’s 2.0 percent target to a more than 2-year low of 1.6 percent, it seems increasingly likely that the ECB will move to cut rates by 50 basis points to 2.00 percent on January 15.

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