LONDON (AFX) - The euro firmed against the dollar in early trade despite evidence of further weakness in France's economy, which until recently was seen to be the most resilient economy of the Euro zone, ahead of the European Central Bank governing council meeting today, dealers said.
French household consumption of manufactured goods fell 0.5 pct in May following a 0.5 pct fall in April.
Audrey Childe-Freeman, economist at Canadian International Bank of Commerce (CIBC) said: "It's not only a manufacturing and German story anymore and it's a broad-based Euro zone slowdown. We are also getting some hints that the consumer sector will also be loosing some momentum."
She added: "This morning the Bundesbank just revised down their industrial orders data for the month of April. It's all pretty much gloom and doom in terms of economic releases and you may wonder why the euro is trading well on that."
"The answer may be that the weakness in those economic indicators have boost ed hopes that the ECB may address the current slowdown in the economy and cut rates today," she said.
The European Central Bank governing council meeting meets in Dublin today. The bank's outcome on interest rates will be announced at 12.45 pm and there will be a press conference at 1.00 pm.
"It may be tempted to wait until we get some better inflation number to cut rates but at the same time there is a strong need for the ECB to do something. I think we should not rule a cut out at all," said Childe-Freeman.
Sterling was up against both the dollar and the euro after Chancellor of the Exchequer Gordon Brown reassured the market with a considered and cautious approach to euro entry tests, according to economists.
Commenting on a speech by Chancellor of the Exchequer Gordon Brown to the Lord Mayor's Mansion House dinner for merchants and bankers last night, Childe-Freeman said "the Chancellor stick to its rather cautious and gradual approach to monetary union. There was not shift in tone and that is why the market is now coming to the conclusion that after all nothing has changed, that's why sterling is gaining."
The yen was weaker against all major after a survey by the Ministry of Economy added to evidences that the economy is struggling.
Japan's regional economies are in recession, the latest quarterly survey by the Ministry of Economy, Trade and Industry (METI) said. "The regional economies are in recession. A mood of slowdown was seen in all economic activities, especially with slowing and neutral capital investment that lacked energy. Personal consumption lacked strength and was short of the energy (needed) for recovery," the report said.
"It's all doom and gloom for the Japanese economy and the latest business industry index was weak. In addition to that comments by the U.S. Whitehouse adviser Lindsey suggesting that a weaker yen may not be too much of an issue gave a green light for further selling of the yen," Childe-Freeman said.