Euro Hit by Lower Growth Forecasts

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Euro continued to drift lower in quiet pre-NFP trade dropping through the 1.2950 barrier as downgrade economic growth from German central bank weighed on the pair. BUBA lowered its growth forecast for 2012 from 1.0% to 0.7% while the forecast for 2013 was revised markedly lower to only 0.4% from 1.6% initially projected.

The anemic rate of growth indicates that the recession that has been plaguing the periphery economies for more than two years is now making its way to the core. BUBA noted that its lower forecast was due to the uncertainties revolving around the EZ crisis, but stated that it expects Germany to return to the growth path soon. Nevertheless it stated that the balance of risk is skewed to the downside and the glum assessment helped to push the euro lower.

EUR/USD was as also hit by flash news that Japan suffered a 7.3 earthquake off its coast. So far there has been no reports of widespread damage and it is not expected to trigger a Pacific wide tsunami, although the Miyagi prefecture is expected to be hit. The news of yet more damage for economically troubled Japan sent risk sentiment tumbling initially with USDJPY dropping to 82.17 from session high of 82.54 but the markets quickly stabilized as they awaited further reports.

Overall the FX markets remain in a cautious mood ahead of the NFP with slight negative bias and will likely tread water for rest of the session as traders await the US labor numbers.

Boris Schlossberg
Managing Director

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