6 March 2002, 15:19 Forex - Euro loses some ground in midday London trade after German orders data
LONDON (AFX) - The euro lost some ground against the dollar in
midday trade after disappointing German manufacturing data but the
markets remain concerned about the US government's decision to impose
steel tariffs, dealers said.
"The markets sense that the US is slightly hypocritical about its
trade policy," said Russell Jones, global head of foreign exchange
research at Lehman Brothers. "The political leader of the free world
should not be encouraging protectionism."
Yesterday's decision by the Bush administration to impose a levy on
imported steel put the dollar under pressure and helped the euro climb
up to around the 0.8727 usd mark.
However, Ian Stannard, currency strategist at BNP Paribas, warned
that the euro is now back on the defensive after German manufacturing
orders fell a seasonally adjusted 2.1 pct in January from December
2001. Analysts had only pencilled in a 1 pct decline.
"The orders are quite a negative for the euro in that it focuses
the market back on the bigger picture in Europe, compared with the US,"
said Stannard. The decline, he added, offset fairly encouraging German
unemployment data.
In addition, Stannard said the pensions ruling by the German
constitutional court is also hitting euro sentiment as well. The court
has ruled that Germany must change the system of pensions taxation away
from taxing contributions to taxing benefits, but not until 2005.
This creates a potential big shortfall in German revenues, he said.
"It highlights the difficult position Germany is in," he said. "It
obviously has a big whole in its budget."
Nigel Andersen, economist at Royal Bank of Scotland, said it adds
greater urgency to corrective measures in the near term to bring the
budget back towards balance by 2004.
Meanwhile, sterling was little changed, despite Prime Minister Tony
Blair's hint overnight that the UK entry rate will be a key issue in
the euro entry debate. Most observers think that sterling is overvalued
against the euro.
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