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High-flying euro cedes ground after ECB Constancio's comments
The euro fell against the dollar and the yen on Tuesday after a senior European Central Bank (ECB) policymaker told investors that they may have missed the message on policy that rates are set to remain accommodative for some time to come.
Vice President Vitor Constancio told MNI news agency that the ECB made its forward guidance more precise at its March meeting by emphasising the slack in the euro zone economy. The ECB still had policy ammunition in the form of lower interest rates or quantitative easing if needed, he said.
The euro fell 0.3 percent against the dollar to $1.3835 retreating further from the 2-1/2-year peak of $1.3915 hit on Friday. The euro was down 0.2 percent at 143 yen , off a recent two-month high of 143.79 yen.
"Euro/dollar is at crucial levels, technically speaking," Ned Rumpletin, G10 currency strategist at Standard Chartered, said. The single currency's inability to close above $1.3894 (its Dec. 27 high) on Friday indicated that the recent rally maybe losing steam in the short term, he said.
"Nevertheless, we have a hawkish ECB chief, higher real yields and a market which is losing its patience with the consensus higher dollar trade. We have adjusted our Q1 and Q2 euro/dollar forecasts and now expect euro to finish Q1 at $1.38, up from $1.32 previously and Q2 at $1.35, up from $1.31."
The euro raced higher last week as the ECB signalled it was unlikely to ease policy anytime soon, despite slowing inflation, and President Mario Draghi said the currency's strength was having only a marginal impact on imported inflation.
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Greece Economy Shrinks Less Than Estimated In Q4
Greece's economy contracted less-than-estimated in the final three months of 2013 in the slowest pace in nearly four years, revised figures from the Hellenic Statistical Authority showed Tuesday.
Gross domestic product decreased 2.3 percent year-on-year, which was revised from 2.6 percent contraction estimated last month.
It was the slowest pace of contraction in the Greek economy since the first quarter of 2010. The size of contraction eased for the third straight quarter.
Final consumption expenditure declined 0.8 percent annually. Gross fixed capital formation fell 15.3 percent.
Exports grew 0.5 percent, driven by higher demand for services. Imports declined 5.6 percent.
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Bank of Spain sees inflation at around 0.4 percent by end of year
Bank of Spain Governor Luis Maria Linde said on Wednesday he saw annual Spanish inflation rising to around 0.4 percent or 0.5 percent by year end, though he said accurate predictions were difficult.
"The ECB aims to keep inflation at around 2 percent, and we're a long way from that right now. This is one more problem for the recovery. We think it will be around 0.4 percent or 0.5 percent," he said during a conference in Madrid.
Consumer prices in Spain were flat in February, official data showed on Wednesday.
Linde also said the European Central Bank may have to take new measures in the coming months as long-term financing operations for European banks, known as LTROs, expire in 2015
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EUR/USD gains as ECB official downplays deflation threats
The euro hit two-and-a-half year highs against the dollar on Wednesday after a key European Central Bank official downplayed deflationary threats.
In U.S. trading, EUR/USD was trading at 1.3909, up 0.35%, up from a session low of 1.3843 and off a high of 1.3909.
The pair was likely to find support at 1.3834, Tuesday's low, and resistance at 1.4169, the high from Oct. 31, 2011.
The euro firmed after ECB executive board member Benoit Coeure said the monetary authority saw no indications of deflation in the euro area, though the risk of softer prices remains a possibility.
"We don't see deflation in the euro zone. We see it as a possible risk, and we have to be ready to act against the risk if it materializes," he said, and his comments firmed the euro by allaying expectations the ECB remains poised to cut rates or roll out fresh stimulus measures.
He added that the central bank has a number of policy measures at its disposal to address the issue.
The euro strengthened broadly after the ECB left interest rates at a record low 0.25% at its policy meeting last week and implemented no new policy measures to shore up growth despite forecasting low inflation for years to come.
Earlier Wednesday, data revealed that the euro zone industrial production contracted 0.2% in January from a month earlier, dragged down by a 2.5% drop in energy output.
Analysts were expecting a 0.5% gain.
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George Soros: Germany botched crisis response and EU may not survive
It’s no secret that Geroge Soros thinks Germany has bungled the response to Europe’s debt crisis with its insistence on across-the-board austerity. On Wednesday, the billionaire hedge-fund legend said he feared the European Union was headed for “long-lasting stagnation” and that the pan-European institution might not survive it.
“My hope is that Germany is going to change and realize that that the policy of austerity is counterproductive,” Soros told the BBC. Germany’s collective memory is of inflation, Soros said, referring to the hyperinflation that followed World War I and is often described as sowing the seeds for the rise of the Nazis. As a result, German policy makers “continue fighting inflation when the threat is deflation,” Soros said.
The billionaire, in a separate event in London, said Germany’s decision to remain in the euro zone “fulfilled my worst expectations,” CNBC reported. A German exit, which he had advocated previously, would have resulted in a tough but difficult “quick fix” that would have let the region rebalance.
Instead, the EU has been transformed into a “creditor-debtor relationship” that is endangering the organization.
Soros is promoting his new book, “The Tragedy of the European Union.”
While Soros is echoing past complaints, some of his recent predictions about Germany and Europe haven’t panned out. Soros in September 2012 predicted that the euro-zone recession would intensify and engulf Germany within six months. Instead, the euro zone slowly returned to meager growth in 2013.
That didn’t appear to hold him back much, though. The man who became famous by scoring a cool billion on his bet against the British pound back in 1992 earned an estimated $4 billion in 2013, in part by shorting the Japanese yen, according to Forbes, which put him atop the publication’s list of top earning hedge-fund managers.
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ECB's Praet Says Policy Stance To Remain As It Is Despite Economic Improvements
The European Central Bank will stick to its forward guidance of keeping the euro area interest rates at current levels or lower, despite economic improvements, as there is significant slack, the central bank's Executive Board member Peter Praet said on Wednesday.
"While staff forecasts gave us indications that we are gradually moving closer to 2 percent inflation over the medium term, we wanted to reassert our assessment that upside pressures to inflation will continue to be dampened by a large amount of economic slack, and by a weakened capacity of banks to create liquidity and credit for the economy," Praet said in a speech at the ECB and its Watchers conference in Frankfurt.
"Because of the significant amount of unutilised capacity, our monetary policy stance will remain as it is - with interest rates staying at the present or lower levels - even as we see improvements in the economy."
Regarding central bank communication, Praet said it was useful to strengthen the bank's communication during turbulent times. "By steering expectations more firmly, central banks' communication initiatives have had a stabilising effect, thereby enhancing the effectiveness of monetary policy," the policymaker noted.
"But to be effective, communication has to be followed by actual decisions, if and when the circumstances require them."
But such actions are only possible only when decisions are consistent with the ultimate objective and strategy of the central bank, Praet said. Else, the central bank risks inaction, or when it does act, it runs the risk of not meeting the objective, he said.
For a central bank to protect its credibility, Praet said it should steer clear of making unconditional commitments about future policy action, but by always emphasising the conditional nature of any guidance.
The ECB's mindset change regarding the publishing of minutes of Governing Council meetings was partly due to changed circumstances, Praet said. During uncertain economic times, he said it is important to reveal the internal debate in the rate-setting body.
"I would favour to convey the content of the debate and the balance of views of Governing Council members," he added.
Praet also stressed that it was crucial that the 18 governors continue to act in a personal capacity and remain independent in their decision-making.
"Communication - no matter how clear - only works if the communicator is credible," he said. "The ECB has a track record of following up words with deeds, and we intend to maintain it."
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Spanish Retail Sales Rise Unexpectedly In January
Spain's retail sales increased unexpectedly in January after declining at the end of 2013, data showed Thursday.
Retail sales increased 0.5 percent on a yearly basis in January, reversing the 1 percent rise posted in December, the statistical office INE said. Sales were forecast to fall 0.8 percent.
Month-on-month, retail sales recovered strongly on food-store sales. Retail sales climbed 2.4 percent, in contrast to a 3.8 percent drop in December.
Data showed that food sales advanced 4.2 percent and non-food store sales gained 0.8 percent in January.
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German GDP Growth Likely To Rise In 2014 And 2015: Bundesbank
The pace of growth in the Germany economy is likely to increase again in 2014 and 2015, Bundesbank said in an annual statement on Thursday.
The low level of interest rates, low unemployment rate, and a distinct increase in earnings, are fueling housing construction. However, foreign trade has not provided any positive impetus of late. Even so, the current account surplus remains high, the central bank noted.
The central bank's profit increased to EUR 4.6 billion in 2013 from EUR 664 million in 2012. The higher profit came as provisions for risks decreased compared to last year.
"The risk situation has eased to some extend because of the decline in the volume of refinancing loans and the reduced holdings of government bonds," Bundesbank President Jens Weidmann said.
However, he added that it would not be appropriate to run down the risk provisions, as the lower key interest rates meant that the Bundesbank was likely to post a smaller profit in 2014.
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German Inflation Slows As Estimated In February
Germany's harmonized consumer price inflation slowed as initially estimated in February, final data published by Destatis showed Friday.
EU harmonized inflation slowed to 1 percent in February from 1.2 percent in January. Compared with January, the harmonized index of consumer prices gained 0.5 percent in February.
The statistical office confirmed the preliminary estimate published on February 27.
Likewise, inflation based on consumer prices came in at 1.2 percent, down from 1.3 percent in January. On a monthly basis, consumer prices advanced 0.5 percent, partially offsetting the 0.6 percent decline seen a month ago. The February rates matched preliminary estimate.
Cost of food increased 3.5 percent, and alcoholic beverages and tobacco climbed 3.5 percent. Clothing and footwear prices rose 2 percent and housing and utility charges moved up 0.8 percent. Meanwhile, household energy cost dropped 0.7 percent.
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Euro zone employment change 0.1% vs. 0.0% forecast
The change in the number of employed people in the euro zone rose last month, official data showed on Friday.
In a report, Eurostat said that Euro zone employment change rose to 0.1%, from 0.0% in the preceding month.
Analysts had expected Euro zone employment change to remain unchanged at 0.0% last month.
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