Euro Plummets To Fresh Multi-month Lows Against Dollar and yen

During early deals on Tuesday, the Euro plunged to new multi-month lows against the US dollar and the Japanese yen on disappointing economic reports released from German economy today.

The euro also declined to multi-day lows against the British pound and the Swiss franc. German business confidence declined to 94.8 in August from 97.5 in July, the Munich-based Ifo research institute showed. Economists had expected the index to fall to 97.2. The index that measures current situation in the largest Eurozone economy fell to 103.2. The indicator stood below July's revised 105.6 and 104.5 expected by economists. Further, the expectations index came in at 87 in August, below the expected reading of 90.5. German consumer confidence for September dropped to 1.5 points from August's revised 1.9 points, a monthly survey from the GfK Group revealed. The indicator last marked a comparable reading in summer 2003. The index stood below the expected reading of 1.9% for September. The German economy contracted 0.5% sequentially in the second quarter, after expanding 1.3% in the first quarter, a detailed report from the Federal Statistical Office showed. The economy shrank for the first time in almost four years. On a yearly basis, the economic growth stood at 3.1%, faster than the 1.8% growth in the first quarter. The German economy shrinking for the first time in four years may be a clear sign for the ECB, that a more accommodative monetary policy is needed to prevent the region from falling into a recession. The European Central Bank left its interest rates unchanged at 4.25% on August 7. The central bank had maintained the rate at a six-year high of 4% since June last year, before hiking it last month over inflation concerns. The interest rate on the marginal lending facility was held at 5.25%, while the interest rate on the deposit facility was retained at 3.25%. Citing prevailing downside risks to growth, Trichet said in his post-ECB-decision press conference that current information has underlined the reasons for the 25 basis point hike delivered in July. During his speech, Trichet added that inflation would remain at high levels for a protracted period of time. With regard to the future direction of interest rates, Trichet reiterated that policymakers had no bias and never pre commit. He asserted that policymakers would do what is needed to fight inflationary pressures. He expressed "very strong concern" over price and wage-setting behavior in the 15-nation economy. The European currency declined to a new multi-month low of 1.4586 against the US dollar during early deals on Tuesday. If the euro-dollar pair weakens further, it may test support around the 1.444 level. The pair closed Monday's trading at 1.4755. The euro reversed direction against the dollar after hitting a record low of 1.6040 on July 15. The euro extended its downtrend in early August and rose beyond the 1.50 level on August 10 for the first time since late February. Since then, the euro has depreciated 9% against the dollar. In early trading on Tuesday, the European currency touched a 3 1/2 month low of 160.07 against the Japanese yen, compared to Monday's closing value of 161.29. The next downside target level for the euro is seen around 158.6 against the yen. The yen strengthened today as the weakness in stocks prompted investors to sell higher-yielding assets funded in Japan. The euro-yen pair has been in a downward channel since July 23 when it reached a record high of 170.00. Since July 23, the euro has lost around 6% against the yen. In economic news from Japan, the corporate service price index climbed 1.3 percent on year in July the Bank of Japan said today. That came in slightly below analyst expectations that were looking for an increase of 1.4 percent on year, and it was up from the 1.2 percent annual increase in June. The data also represented the 24th straight month of increase for the index. On month, the index eased 0.1 percent. The euro-pound pair fell to a 4-day low of 0.7941 by about 4:05 am ET Tuesday and this may be compared to yesterday's close of 0.7965. On the downside, the euro-pound pair is likely to target the 0.785 level. The pound gained as the number of mortgages approved in the UK for house purchases rose to 22,448 in July from 22,369 in June, the British Bankers' Association, or BBA, announced today. However, mortgage approvals recorded a decline of 65% on an annual basis. Approvals for re-mortgaging dropped around 21% from the prior year to 54,232 in July. The euro gained around 9% against the pound earlier this year to hit a record high of 0.8101 on April 16. Thereafter, the euro-pound pair weakened but rebounded in early May, and since then the pair has been moving between 0.784 and 0.804. Against the Swiss franc, the euro slumped to a 5-day low during early trading on Tuesday. At about 4:05 am ET, the pair reached 1.6153, down from yesterday's New York session close of 1.6172. If the euro-franc pair slips further, 1.610 is seen as the next target level. The Swiss UBS consumption indicator decreased significantly in July falling to 1.85, marking the largest correction seen during a single month for just under a year. The indicator fell from 2.22 in June, revised from 2.25 reported earlier. Further, the UBS said the July reading fell below the average for the past 12 months though the indicator showed a decreasing trend since February. Investors now look forward to the New York session, in which the US consumer confidence, Richmond Fed manufacturing index and the new home sales report are expected to influence trading. At 2:00 pm ET, the Federal Reserve is scheduled to release the minutes of its August 5th meeting. As expected, the Fed left the fed funds target rate unchanged at 2% at its August meeting. Dallas Fed President Richard Fisher cast the only dissenting vote against the decision to pause. The post-meeting policy statement relayed a balanced outlook on growth and inflation, but it did not provide much clarity on the future rate outlook. Copyright(c) 2008 RealTimeTraders.com, Inc. All Rights Reserved