FX Roundup: Euro continues to slide, dollar corrects on Dudley comments

The Eurozone unexpectedly entered deflation in February, as data published on Monday by Eurostat revealed the consumer price index fell 0.2% year-on-year this month, compared to analysts’ expectations of 0% and January’s 0.3% gain.

At 1635 GMT, the euro shed 0.18% and 0.36% against the dollar and pound, changing hands at $1.0853 and £0.7785 respectively.

The pound got some respite but the British currency continued to trade at six-year lows versus the dollar, with a referendum on the country’s membership of the European Union set for 23 June.

With a pound fetching on average $1.3938, rising a modest 0.15% intraday, FXTM chief market analyst Jameel Ahmad said both the British currency and the euro will continue to feel the heat.

“Whether the European Central Bank (ECB) will actually unleash further quantitative easing is going to be widely discussed over the coming weeks, but investors are currently pricing in at least another interest rate cut from the ECB or lowering its deposit rate even further from where it already stands at minus 0.3%. Technically, the euro remains very weak against the dollar and it appears that an even wider divergence of monetary policy between the ECB and US Federal Reserve will continue to encourage sellers in the EUR/USD.

“Switching to the pound, confirmation of the June referendum will be enough encouragement for traders to continue pricing in weakness in the GBP/USD towards 1.30. The GBP/USD looks technically extremely weak and the psychological close below 1.40 late last week means that longer-term sellers have probably found at opportunity at their feet to price in further declines into this major currency pair.”

Elsewhere, the greenback had a mixed session as it retreated against selected commodity crosses but rose 0.93% intraday versus the yen, changing hands at JPY113.74. Speaking in Hangzhou, China, president of the Federal Reserve Bank of New York William Dudley, said he was now increasingly worried that the rate of inflation might fail to rise back to the US central bank’s 2.0% medium-term target.

“On balance, I am somewhat less confident than I was before. Partly, this reflects my assessment that uncertainty to the outlook has increased and that downside risks have crept up,” the central banker added.

Commodity linked currencies saw a better session in Europe on the back of the remarks. Kit Juckes, head of forex at Societe Generale, said, "An uneventful day in Asian markets gave Europe relatively little to go on as the wait for Friday's US jobs report dominate. But oil prices are steady, still doing a good impression of bottoming-out. We'll stay long CAD and NOK, short NZD, and GBP. We like EUR/USD downside here too and for that matter, we like short EUR/RUB too."

The greenback fell 0.89% against the Canadian dollar changing hands at CAD$1.3420. A plethora of other commodity currencies also rose, particularly in Latin America, with the dollar falling 1.35%, 0.47%, 1.03% and 1.57% against the Mexican, Colombian, Chilean pesos and the Brazilian Real respectively.

Finally, the Australian dollar rose 0.41% against the greenback exchanging at US$0.7170, as did the New Zealand dollar notching gains of 0.33% exchanging at US$0.6612.