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Euro Declines ahead of ECB Rate Statement

H.S. Borji
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Euro Declines ahead of ECB Rate Statement

The euro was on its heels Wednesday, declining against its US and British counterparts as the markets shifted their attention to the European Central Bank policy announcement.

In economic data, the Eurozone economy expanded just 0.2 percent in the first quarter, the European Commission confirmed today. Year-on-year, the Eurozone economy expanded 0.9 percent.

The figures were unchanged from the previous estimate.

A separate report from the EC showed Eurozone producer price inflation was gradually improving. Industrial producer prices declined 0.1 percent in May, following a similar decline the previous month. Compared to May 2013, producer prices were down 1 percent in the euro area, following a decline of 1.2 percent the previous month.

Eurozone consumer inflation was unchanged at 0.5 percent in June, official data showed. The ECB is closely monitoring inflation at all levels to determine its next course of action. Last month central bank policymakers slashed interest rates to 0.15 percent and introduced a negative deposit rate in an effort to steer the Eurozone away from deflation.

The strength of the euro suggests the markets are hopeful the ECB will be able to steer the currency zone away from deflation. On Wednesday, however, the common currency was on its heels, as the markets absorbed a steady stream of economic data from both sides of the Atlantic.

The markets are not expecting any changes to ECB policy at tomorrow’s meetings, as policymakers continue to sift through economic data.

Eurozone bond earned 1.1 percent in June after the central bank unveiled its new policy blueprint on June 5.

The EURUSD declined 0.19 percent to 1.3653, rebounding from an intraday low of 1.3644. The pair is currently trading at the ten-day average and faces initial support at 1.3645. On the upside, initial resistance is likely found at 1.3695.

The euro has advanced 0.2 percent against the greenback over the last four weeks amid weak demand for the US dollar.

In US data, the ADP Institute said employers added 281,000 private payrolls in June, well above the median estimate. The unexpectedly high reading has prompted some economists to reconsider their forecast for June nonfarm payrolls.

The Labor Department will issue official nonfarm payroll data Thursday.

The euro declined for the third consecutive day against the British pound, as the EURGBP fell 0.26 percent to 0.7955. The pair faces initial support at 0.7949 and resistance at 0.8000.

In UK data, house prices continued to rise at a robust pace in June, Nationwide reported today. House prices advanced 1 percent in June, following a gain of 0.7 percent the previous month. Year-on-year, house prices were up 11.8 percent.

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