ECB official says negative deposit rate possible: report
By William L. Watts and Sarah Turner, MarketWatch
FRANKFURT (MarketWatch) — The U.S. dollar extended a gain versus the euro and most other major rivals other than the Japanese yen after data showed the euro-zone economy shrank more than expected in the final quarter of 2012, boosting expectations for a rate cut by the European Central Bank.
The euro EURUSD -0.8337% , which had topped the $1.37 level earlier this week, traded at $1.3335 after the European Union statistics agency Eurostat said euro-zone gross domestic product fell 0.6% in the final three months of 2012. See: Euro-zone GDP plunge stokes rate-cut hopes .The shared currency had traded at $1.3448 in North American trade late Wednesday.
“Today’s performance can be characterized as a sobering up for the single currency,” said Simon Smith, chief economist at FxPro in London.
The euro’s earlier push above $1.37 — a level last seen in November 2011 — “came despite the on-going weakness of the underlying economy and also public finances in many nation states,” Smith said, in a note.
Further downside may be in the cards, he said, noting trendline support is seen at $1.3275, while the 50-day moving average is seen at $1.3282. A break through those areas would undermine the technical uptrend seen over the past two months, Smith said.
Meanwhile, despite signs from more timely data that the euro-zone economy has stabilized, economists said the steepness of the fourth-quarter plunge boosts prospects for a rate cut by the ECB.
Remarks by ECB Vice President Vitor Constancio helped fuel such expectations after he was quoted as saying the central bank is technically ready to lower the deposit rate it pays on banks’ deposits to below zero, but hasn’t yet decided whether to do so. See: ECB official says negative deposit rate a possibility .
“It’s not clear-cut, it’s a possibility,” Constancio said at an event in Brussels, according to Reuters.
“We do not believe that the ECB will cut [its key lending rate], which is 0.75%, due to opposition from some larger members like Germany, who are concerned about inflation. However, the deposit rate is already at 0%,” said Kathleen Brooks, research director at Forex.com. “This adds a fresh dimension to the March ECB meeting.”
The ICE dollar index DXY +0.56% , which measures the greenback against a basket of six other major currencies, traded at 80.544 in recent trade, up from 80.082 in North American action late Wednesday.
The WSJ dollar index XX:BUXX +0.40% , a benchmark for the greenback’s moves against a slightly wider basket of currencies, traded at 71.87, up from a close of 71.55 on Wednesday.
Meanwhile, concerns over so-called currency wars may keep traders on the sidelines ahead of a meeting of Group of 20 finance ministers and central bankers in Moscow this weekend, analysts said.
Earlier this week, the yen gyrated after a joint currency statement by the Group of Seven major economies was interpreted one way and then another by the markets.
The yen initially sank against other major currencies after a statement from G-7 officials was interpreted as a tacit endorsement of Japanese policies aimed at weakening the yen.
The Japanese currency subsequently rebounded after an unidentified G-7 official was quoted in a news report as saying markets had misinterpreted the joint statement.
The official said the G-7 was concerned about excessive volatility by the yen and that Japan would be a major focus at the G-20 meeting.
“There is scope for the G-20 to add to the G-7 statement, but we suspect the core of the message — no targeting of exchange rates — will remain intact,” said Vassili Serebriakov, currency strategist at BNP Paribas.
Meanwhile, The Wall Street on Thursday reported that George Soros has made nearly $1 billion in paper profits since November by betting on a weaker yen and that other hedge fund magnates have also scored big profits with similar wagers. See The Tell: Soros, other hedge funds score billions betting on falling yen .
Against the yen, the dollar USDJPY -0.03% traded at ÂĄ93.33 Thursday, a touch below its ÂĄ93.42 level in late trading Wednesday.
Earlier in the day, gross domestic product data showed that Japan’s economy chalked up a third quarter of contraction in the October-December period, shrinking 0.1%.
The Bank of Japan, however, said later in the day that the domestic economy now appears to have stopped weakening. Read: Bank of Japan stands pat, says economy bottoming .
Of the other majors, the British pound GBPUSD -0.20% eased to $1.5512, down from $1.5542, and the Australian dollar AUDUSD -0.16% traded at $1.0338, falling slightly from $1.0357.
William L. Watts is MarketWatch's European bureau chief, based in Frankfurt. Follow him on Twitter @wlwatts.
Sarah Turner is MarketWatch's bureau chief in Sydney. Follow her on Twitter @SarahTurnerMKTW.
