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Euro Faces Record-High Unemployment, Slower Inflation

Euro Faces Record-High Unemployment, Slower Inflation

David Song, Strategist

Talking Points

  • Euro: Unemployment to Hit Fresh-Record High, Inflation to Slow Further
  • British Pound: To Hold Range Despite BoE- Meeting Minutes in Focus
  • U.S. Dollar: Construction Spending, ISM Manufacturing on Tap

Euro: Unemployment to Hit Fresh-Record High, Inflation to Slow Further

The Euro bounced back from an overnight low of 1.2770 to maintain the range from the previous week, but the single currency may struggle to hold its ground ahead of the European Central Bank (ECB) interest rate decision as the region faces a deepening recession.

As the economic docket is expected to show unemployment hit a fresh record-high of 12.0% in February, the ongoing weakness in the labor market is likely to dampen the outlook for growth, while the headline reading for inflation is expected to slow to 1.6% in March, which would mark the slowest pace of growth since August 2010.

As the economic downturn threatens price stability, central bank President Mario Draghi may deliver a more dovish policy statement at the rate decision scheduled for April 4, and we may see a growing number of ECB officials show a greater willingness to push the benchmark interest rate to a fresh record-low in an effort to steer the euro-area out of recession. At the same time, the central bank may continue to rely on its non-standard measures as the governments operating under the money union struggle to get their house in order.

As Europe remains closed for the Easter holiday, the EURUSD may preserve the range-bound price action over the next 24-hours of trading, but the pair may continue to fall back towards the 23.6% Fibonacci retracement from the 2009 high to the 2010 low around 1.2640-50 should the fundamental developments coming out of the euro-area fuel bets for more monetary support.

British Pound: To Hold Range Despite BoE- Meeting Minutes in Focus

The British Pound continued to track sideways on Monday, but the sterling may continue to retrace the sharp decline from the previous month as the Bank of England (BoE) is widely expected to maintain its current policy in April.

As the GBPUSD consolidates above the 1.5100 figure, we may see the pair make another run at the 50.0% Fib from the 2009 low to high around 1.5260, and the pound may face range-bound prices over the near-term should the BoE refrain from releasing a policy statement once again.

As the majority of the Monetary Policy Committee preserves a neutral policy stance, the BoE Minutes due out on April 17 may show another 6-3 split, and the central bank may have little choice but to maintain its current policy in 2013 as inflation is expected to hold above the 2% target over the policy horizon.

U.S. Dollar: Construction Spending, ISM Manufacturing on Tap

The greenback is struggling to hold its ground, Dow Jones-FXCM U.S. Dollar Index (Ticker: USDOLLAR) slipping to a low of 10,443, and the reserve currency may weaken further during the North American trade as manufacturing in the world’s largest economy is expected to expand at a slower pace.

Although Construction Spending is projected to increase 1.0% in February, the ISM Manufacturing index is expected to fall back to 54.0 in March from 54.2 the month prior, but a more pronounced slowdown in business output may spark a sharp selloff in the dollar as it dampens the outlook for growth.

FX Upcoming

Currency

GMT

EDT

Release

Expected

Prior

USD

14:00

10:00

Construction Spending (MoM) (FEB)

0.8%

-2.1%

USD

14:00

10:00

ISM Manufacturing (MAR)

54.2

54.2

USD

14:00

10:00

ISM Prices Paid (MAR)

59.5

61.5

AUD

22:30

18:30

AiG Performance of Manufacturing Index (MAR)

45.6

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

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