Markets await ECB conference as unemployment figures in the Eurozone reach all time high

Tom Tong03/May/2012Currency Updates

EUR

The euro has remained firmly out of favour in markets as record unemployment figures for the eurozone released Wednesday rose to 10.9% in March (highest level since the euro was launched in 1999) with Spain having the highest proportion at 24.4%. Due to this, Europe’s leaders are set to increase the pressure to switch from harsh austerity measures and look to push for a pro-growth strategy.

The euro slipped against most of its major counterparts after data showed the eurozone manufacturing sector slipped further into decline last month as a downturn that started in the periphery appears to be taking root among core members such as France and Germany.

Today markets will be waiting in apprehension as the ECB conference takes place, with pressure growing on the bank to use bond buying and other measures to shield weaker euro members from additional pain. Expectations are also growing that the ECB may soon cut borrowing costs, which in turn will erode the euro’s interest rate advantage.

GBP

Sterling has shown strength over the past few weeks, reaching a 22-month high against the euro. Investors may see sterling as a safe haven currency as the U.S. dollar weakens and Spain dips into a recession as well as being one of the largest developed economies to have held onto its AAA credit rating.

The main reason sterling is set to continue to appreciate has to do with the increasingly dovish monetary policies being implemented or threatened by many of the world’s major central banks simultaneously, whereas the Bank of England has gone in the other direction with a hawkish view for further asset purchasing.

The immediate prompt for yesterday’s rise in sterling was data showing that the UK construction industry declined at a slower pace in April than expected, while new mortgage approvals unexpectedly rose in March.

USD

The US dollar gained ground against the most of the other majors during yesterday’s session, as investors sought its safe haven qualities after gloomy European manufacturing data and amid jitters ahead of a European Central Bank meeting.

The Dow Jones equities market edged off yesterday’s four-year high due to profit-taking from speculators as well as investors shedding stocks and other riskier investments and sought safety in government debt.

The Greenback is expected to trade with a neutral to positive bias until Friday’s key US Non-Farm Payrolls data is released. Furthermore, the stronger dollar puts pressure on metal prices as it makes commodities priced in the U.S. unit more expensive for holders of other currencies.

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Written by Tom Tong

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