Euro Advances After ECB Coeure's Speech
May 03 2016 - 2:51AM
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The euro climbed against its major rivals in European trading on
Tuesday, on the back of a weaker dollar, and as the European
Central Bank Executive Board member Benoit Coeure said that the
central bank is unlikely to cut the deposit rate into "absurdly low
levels."
The policymaker said that thus far negative rates have not had a
major impact on market makers themselves. On the other hand, banks'
profitability has improved due to a mix of lower funding costs,
increased lending volumes and lower loan-loss provisions, Coeure
said.
"To be sure, this would not necessarily remain true if the
deposit facility rate were to be set at significantly lower
levels."
"But this is why I have said elsewhere that we would not take it
to absurdly low levels," he added.
Figures from Eurostat showed that producer prices advanced 0.3
percent on month, confounding expectations for a 0.1 percent fall.
In February, producer prices had dropped 0.7 percent.
Producer prices fell 4.2 percent year-on-year in March, the same
pace of decline as seen in February. Prices were expected drop 4.6
percent.
The currency was also underpinned by yesterday's data showing
improvement in manufacturing activity in Germany and Eurozone.
The final PMI for the eurozone's manufacturing sector was
revised up to 51.7 from flash score of 51.5, while Germany's
manufacturing PMI climbed to a three-month month of 51.8 in April
from 50.8 in the prior month.
In other economic news, Eurozone growth is likely to be less
than the expansion expected earlier during this year and next, and
inflation is set to be less than what was seen earlier, latest
projections from the European Commission showed Tuesday.
The executive arm of the EU cut the euro area growth forecast
for this year to 1.6 percent from 1.7 percent in its Spring 2016
Economic Forecast report. The projection for next year was lowered
to 1.8 percent from 1.9 percent.
The euro showed mixed performance in Asian deals. While the euro
held steady against the franc and the pound, it rose against the
greenback. Against the yen, it declined.
Reversing from an early low of 0.7842 against the pound, the
euro advanced to near a 2-week high of 0.7893. If the euro-pound
pair extends rise, 0.80 is likely seen as its next resistance
level.
Data from Markit showed that the U.K. factory activity
contracted for the first time in three years in April.
The Chartered Institute of Procurement & Supply Purchasing
Managers' Index fell unexpectedly to 49.2 in April from revised
50.7 in March. It was forecast to rise to 51.2 from March's
originally estimated value of 51.
The single currency, having fallen to 1.1521 against the
greenback at 7:45 pm ET, spiked up to more than an 8-month high of
1.1616. Continuation of the euro's uptrend may lead it to a
resistance surrounding the 1.17 zone.
The 19-nation currency reversed from an early low of 122.12
against the Japanese yen, climbing back to 122.76. Further uptrend
may see the euro challenging resistance around the 124.00 area.
The common currency climbed to more than a 2-week high of 1.4526
against the loonie, 3-week high of 1.6593 against the kiwi and more
than a 2-month high of 1.5319 against the aussie, from its early
lows of 1.4421 and 1.6348, and a 4-day low of 1.4936, respectively.
The euro is seen finding resistance around 1.47 against the loonie,
1.68 against the kiwi and 1.55 against the aussie.
On the flip side, the euro declined to a 4-day low of 1.0960
against the Swiss franc, from an early near 2-month high of 1.1017.
On the downside, the euro may find support around the 1.08
mark.
Looking ahead, at 10:30 am ET, Federal Reserve Bank of Cleveland
President Loretta Mester speaks in a panel discussion titled
"Unconventional wisdom: How will unusual monetary policy affect
market liquidity" at the Atlanta Federal Reserve's Annual Financial
Markets Conference, in Amelia Island.
The Bank of Canada Governor Stephen Poloz speaks in a panel
discussion at the Milken Institute's Global Conference in Los
Angeles at 12:30 pm ET.
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