LONDON (AFX) - The euro plunged to new lows for 2001, reverting to its dismal downwards trajectory in midday trade after the April West German business climate index came in weaker-than-expected at 92.5 in April, dealers said.
A brief upwards blip in the euro earlier this morning was attributed to short-covering by traders, after the data failed to match this morning's heightened market fears of even poorer German confidence, said IDEAGlobal's currency strategist Simon Hayley. "Don't be confused by the upwards moves, it was just dealers short-covering. The data came in slightly below consensus." Gary Noone at Standard & Poor's also pointed to ongoing negative sentiment towards the euro. .
"There were meant to be stops below 0.8740 usd, few were triggered," he added.
Neither expect the European Central Bank's governing council to cut rates tomorrow at its fortnightly meeting.
"With the ECB you never know though," said Noone, citing the bank's shock decision to cut interest rates by 25 basis points on May 10. Meanwhile in the UK, sterling also weakened against the dollar, as sentiment took a knock on the back of yesterday's "worst on record trade data," said Noone.
The market is now talking of a rate hike by the Bank of England's Monetary Policy Committee in August, he said, rather than a cut in July after the general election.
"There are conflicting signals from the economy. The housing and consumer sectors are picking up but the trade data yesterday could be inflationary. With buoyant demand in the UK it's not good to cut right now. I don't envisage further cuts," Noone said.
But Hayley firmly disagreed with Noone's rationale.
"It's all opportunist talk on the big headlines yesterday. Sterling is well-supported and they're putting two and two together." he said. "The UK trade deficit is not worrying the Monetary Policy Committee. Its focus is on inflation." He believes the Bank of England's governor, nicknamed "Steady Eddie", is unlikely to follow the steps of the more aggressive U.S. Federal Reserve and is most likely to cut rates in July, or possibly August.