Source: ForexYard
The European currency retreated from gains made earlier in the week against its major counterparts. Against the USD it was down about 2% at $1.2889, after hitting a session low of $1.2875, and versus the Japanese currency, the EUR was down over 2% at 115.18 Yen. The EUR currency slipped on comments by European Central Bank (ECB) President Jean-Claude Trichet, who said that the ECB could cut key Euro-Zone Interest Rates below the current 2%, in addition to more unconventional measures.
The weak economic figures which came out of the Euro-Zone reversed any significant gains that the EUR made against the Dollar in recent days. The underlining weakness in the European economy was data showing that German unemployment posted its biggest increase in nearly four years in January. In addition, the European Commission said its index of executive and consumer sentiment declined to a record in January.
The index fell to 68.9, the lowest level since it was started in 1985. Analysts say that for many investors, the strategy appears to be simple: to avoid risk; which means funds are flowing out of the EUR and back into the Dollar and the Yen. The slowing economic growth of the Euro-Zone has prompted investors to repatriate funds from higher-yielding assets that might cause the EUR to decline further.
The EUR will likely to extend its downtrend into the middle of the next trading week as the Unemployment rate in the Euro-Zone raised in December to 8.0% its highest level since November 2006 and above the market’s forecast. Economists say that this data demonstrates just how strong disinflation pressures are in Europe and it will likely put more pressure on the European Central Bank to have further easing.
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