Industrial production plunge weighs down single currency
Dismal data on the euro-zone economy allowed the greenback to gain ground versus the European single currency Thursday, while it lost ground versus the Japanese yen.
The European Union statistics agency Eurostat said industrial production across the 16 nations that make up the euro zone fell another 2.3% in February, bringing output down by a record 18.4% compared with the year-earlier month.
At the same time, Eurostat confirmed consumer inflation slowed to an all-time annual low of 0.6% in March from 1.2% in February, well below the European Central Bank's 2% medium-term target.
The reading reinforced expectations that annual inflation could soon turn negative, underscoring a deflationary threat to the euro zone, economists said. See full story.
"Today's numbers vividly show that the worst is not yet over for the euro-zone economy and indicates the direction for overall economic performance in the first quarter," said Joerg Radeke, an economist at the Center for Economic and Business Research. "The data will be closely watched by the European Central Bank when assessing the need for further monetary-policy action."
The ECB earlier this month cut its key lending rate by a quarter point to 1.25%. Officials have indicated a further cut is likely next month and have held open the door to implementing "unconventional measures" designed to boost growth. But it's not clear whether the ECB will overcome reluctance to follow other central banks on the path to quantitative easing.
The euro traded at $1.3167 versus the dollar, down from $1.3222 in late afternoon trade in North America Wednesday.
The dollar index a measure of the greenback against a trade-weighted basket of currencies, rose to 85.239 from 84.667.
U.S. stock-index futures were mixed, rebounding from losses after a stronger-than-expected first-quarter earnings report from J.P. Morgan Chase The bank said profit fell 10% to $2.14 billion, or 40 cents a share, from $2.37 billion, or 67 cents a share, in the year-earlier period. Read Indications.
Expectations were earnings of 32 cents a share, according to a survey of analysts by Thomson Reuters. See full story.
China's economy grew at a slightly stronger-than-expected annual rate of 6.1% in the first quarter, boosted by fixed-asset investment and firing industrial production. The pace marked a slowdown from 6.8% in the fourth quarter of 2008. Median expectations were for growth of 6%, according to a survey of economists by Dow Jones Newswires.
The pace was still the slowest in nine years and served to boost the dollar and Japanese yen early Thursday, said strategists at Brown Brothers Harriman.
The dollar traded at 98.78 yen versus the Japanese currency, down from 99.43 yen.
The dollar has tended to gain ground during periods of economic uncertainty and financial turmoil, benefiting from falling equities as investors flee into other dollar-denominated assets. The yen has benefited from similar flows.
Conversely, rising equity markets and have tended to undercut the dollar and the yen as investors show more tolerance for risk.
