EURO Wallowing In No-Mans Land

The EUR received only temporary support from a surprise uptick in Spanish manufacturing data early Friday. The 17-member currency hastily lost it all when other Euro-zone activity headlines began to disappoint. For now, the dollar is back in demand despite the US sequester cloud that kicks in with automatic spending cuts today.

The overall tone in Europe’s financial markets remains subdued ever since it was announced that Euro-zone banks would sharply scale back their early repayment of funds from the ECB’s three-year lending operations next week. In total +EUR12.5b is to be repaid, a sharp drop from last week’s +EUR62.8b. Negative news flow continues to have an impact on Euro regional funding markets.

Italy’s inconclusive election result probably means another vote later this year is most likely. Investors are now worried that the Italian political situation could undermine further euro-zone economic growth and financial market confidence. Spain will get to test investor appetite for its government bonds early next week, becoming the latest of the weaker peripheries to seek investor funding. Italy’s debt auctions came with good demand but at the expense of higher yields.

Dovish Draghi rhetoric is shaping the EUR ahead of next week’s ECB interest rate meeting. However, Do not be surprised to see the ECB using further communication to allow euro money markets to adjust.

• GBP UK House Prices Show Lack of Movement
• GBP UK Near a Third Dip Recession After January Manufacturing and Housing Data
• EUR Unemployment Hits Record High 11.9 percent
• EU Agrees to Cap Bankers’ Bonuses
• Euro Saved by Smooth Italy Debt Auction
• Draghi Says ECB in No Rush to Tighten Monetary Policy
• European Business Confidence Rises in February
• Europe Still Attractive for Carlyle Group
• Italian Bond Sale Ends with Higher Yields after Election
• UK Economy Growth Revised Upwards in 2012
• Investors await Italian bond sale as Yen holds on
• Spanish Minister Worries About Italian Election Effects
• Draghi Euro Defense Led to Italian Leadership Vacuum
• Bundesbank Calls France Out for High Deficit
• UK Retail Sales Falls in February
• Italian Hung Parliament on Berlusconi Likely
• Berlusconi Lead in Senate Could Gridlock Italy after Elections
• UK AAA Credit Rating is Downgraded

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