Weekend G-20 meeting could spark position-squaring
LONDON (MarketWatch) --The euro was under pressure Friday, losing ground against the dollar and major counterparts as data confirmed expectations the 15-nation euro zone had tumbled into recession for the first time since the single currency's introduction nearly 10 years ago.
The euro remained well above its weekly low, but traded at $1.2702 against the dollar in recent trade. That's down from $1.2787 in North American activity late Thursday.
The single currency traded at 123.09 yen against the Japanese currency, down 1.2% on the day. It retreated slightly against sterling to 85.63 pence, after hitting a series of all-time highs against a broadly weaker British pound earlier in the week.
The region's third-quarter gross domestic product shrank 0.2% compared to the previous quarter, according to the statistical agency Eurostat. The second quarter also saw a 0.2% decline.
Recession is commonly defined as two or more consecutive quarters of falling GDP. See full story.
Meanwhile, annualized consumer price inflation across the 15-nation euro zone slowed to a 3.2% pace in October from 3.6% in September, Eurostat reported.
Economists expect inflation to continue falling rapidly, leaving the Frankfurt-based European Central Bank plenty of room to slash interest rates.
The dollar and, to an even greater extent, the yen were primary beneficiaries of an intense round of deleveraging, liquidation and safe-haven flows in October. The currencies gave back some ground after the end of the month as risk appetite revived on ideas equity markets have seen their lows.
The dollar weakened late Thursday as equities bounced back late in the day after a test of recent lows.
But otherwise, risk aversion was on the upswing in the past week.
"Ironically, it has been the recent deluge of weak economic data that has been the major factor in this transition given that it has dispelled all but the most optimistic hopes that a pronounced economic downturn can be avoided," said Neil Mellor, currency strategist at Bank of New York Mellon.
The dollar index , a measure of the greenback against a trade-weighted basket of six major currencies, rose to 86.885 from around 86.445 in North American activity late Thursday.
The dollar lost ground against the Japanese currency to trade at 96.96 yen from 97.79 yen
The pound traded at $1.4825, little changed from late Thursday.
Strategists said this weekend's summit of leaders from the Group of 20 industrialized and developing nations in Washington could prompt traders to close out positions by the end of the day. Read about the summit.
"The G-20 looms large this weekend and implies that positions in foreign exchange may be squared ahead of any announcement of coordinated measures to support the global economy," wrote economists at Lloyds TSB. "This will in all likelihood determine price action in foreign exchange and stocks when trading resumes on Monday."
But strategists at Commerzbank said signs of strains between the United States and European leaders on how to regulate financial markets, and other matters, indicates the most likely outcome will be "vague statements" and pledges to work together.
"This, however, will not be sufficient to calm the markets," they wrote. "The fear of recession is therefore unlikely to recede and the dollar will continue to benefit from flight to quality while trading remains volatile."
