News that the German economy has slipped into recession for the second time in two years has taken euro down a notch this morning. The euro slipped to a one week low against the dollar - dropping to USD1.1445 from USD1.16 on Monday and is also well off its highs against sterling, at 70.85p. German GDP fell 0.2pc in the first quarter from the fourth quarter of 2002 following a decline of 0.03pc in the last three months of 2002. A recession is technically defined as two consecutive quarters of negative growth.
The euro was already under pressure after failing to take advantage of an unexpected drop in US retail sales last night, but analysts say the decline is likely to be short lived. "Traders are taking profits after [the euro's] recent surge, with speculation of an ECB rate cut and BoJ intervention on the dollar/yen and weak Q1 German GDP data dampening enthusiasm," said Geraldine Concagh, senior economist at AIB Treasury. "Despite its recent wave of selling, the dollar survived yesterday's weaker than expected retail sales report. However, significant downside risks remain and the euro's latest move may be little more than a temporary correction." //www.fxcentre.com