EUR Falls on Weak Economic Data

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.

Looking ahead to today, there are 2 important economic data releases coming out of the Euro-Zone. The CPI Flash Estimate and the Unemployment Rate figures are set to be published at 10.00 GMT. If these figures are better than expected, then the EUR may reverse some of yesterday’s declines. However, if the figures are in line with forecasts or worse, then the EUR may make additional losses today vs. the Dollar, Pound, and Yen. Forex traders are advised to pay attention to GDP figures coming from the U.S., and Consumer Confidence data coming from Britain later today, as this may determine the Euro’s strength against the GBP and USD into the middle of next week.