Euro Gains Capped By Lowest GDP Since 1995, Pound Soars Ahead of G-7

Daily Forex Fundamentals | Written by DailyFX | Feb 13 09 11:36 GMT |

Talking Points Japanese Yen: Tests 91.70 Pound: Rally's Ahead OF G-7 Euro: GDP Contracts Most Since 1995 US Dollar: U of M On Tap Euro Gains Capped By Lowest GDP Since 1995, Pound Soars Ahead of G-7 The Euro would reach as high as 1.2940 on the back of increased risk appetite and short covering ahead of the G-7 meeting and the prospect of more initiates from the U.S. government. However, the German GDP reading of a -2.1% ended bullish momentum as it increase the chances of more rate cuts from the ECB. The largest contraction in 22 years for the regions largest economy would drag the economic unions growth number down to -1.5%. Euro-zone GDP contracted for the third straight quarter and the most since 1995. The dour growth numbers has increased the chances that the central bank will cut rates by at least 50 bps at their March meeting. Indeed, ECB executive board members Lucas Papademos, Juergen Stark and Jose Manuel Gonzalez Paramo as well as Spanish central bank Governor Angel Fernandez Ordonez and Belgium Governor Guy Quaden said this week that the bank may cut rates next month. The lower interest rate expectations will continue to be a weighing factor for the Euro, but increasing risk appetite has keep the single currency supported which may keep in stuck in its recent range of 1.2700 - 1.3100 over the near-term. Then pound soared over 250 bps to as high as 1.4600 on the back of the increasing risk appetite as it erased the majority of the losses it suffered following the BoE's quarterly inflation report. Indeed, the central bank signaling further rate cuts and the possibility of quantitative easing had sunk Sterling to as low as 1.4150. The 50-Day SMA continues to provide formidable resistance at 1.4650 and may limit anymore upside potential for the pound. The potential of more coordinated efforts to revive the global economy coming from the G-7 meeting has fueled the bullish Sterling sentiment. However, if the current every man for themselves mentality continues post summit then we could see recent gains reversed. The prospect of a new plan to help stem foreclosures helped reverse market sentiment at the end of the U.S. session and the increase in risk appetite has continued through overnight trading. The mortgage plan and the stimulus plan finally getting passed may be the catalyst to send equity markets higher which could lead to dollar weakness. However, with a three-day weekend ahead traders may be reluctant to become too bullish especially with the G7 meeting scheduled. The gathering of the leaders of the developed nations isn't expected to focus on currencies but it still provides potential event risk. The U of Michigan consumer confidence report is expected to show that consumers have become les optimistic, which could negatively impact consumer spending going forward. The mounting job losses have led Americans to retrench and their conservative spending habits will remain a weighing factor of domestic growth. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.