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ISEQ recovers-Where goes the Euro now

Friday, February 22 09:10:33

The ISEQ has bounced a little this morning to 3650, up 19 points as markets recover a little following yesterday's selloff.

Currency movements are becoming a major issue in international markets and are examined today by AIB Treasury Services:

A combination of euro weakness and dollar strength saw the euro drop to a (just above $1.3160) six week low against the US currency during yesterday's trading.

The single currency was hit by weaker than expected eurozone PMI data, indicating that the economy continued to contract in February and keeping alive the possibility of a further interest rate cut.

Caution ahead of weekend Italian elections, and the possibility that these could result in a fragmented government that will make it difficult to pursue a reform agenda, also weighed on the euro.

While the euro has moved back slightly from these lows, there is continued caution as markets await today's German Ifo index, as well as the Italian elections.

Meanwhile, the dollar continues to be supported by the hawkish tone to Wednesday's FOMC minutes.

The possibility that the Fed might end its asset purchase programme earlier than anticipated helped push the dollar's trade weighed index to a five month high.

The dollar, though, edged back from its highs in later trading with disappointing US data, notably an unexpected fall in the Philly Fed index. While generally firm, the dollar failed to advance much against the yen as the Japanese currency benefits from some dimming in the expectations of the extent of further of BoJ easing.

Sterling saw two and a half year dollar low in early trading yesterday (around $1.5140) as Wednesday's dovish BoE and hawkish Fed minutes continued to weigh.

However, it trimmed some of its steep losses against the dollar, while moving higher against the generally weak euro, following the release of better than expected data on the UK public finances and as the dollar lost some momentum in later trading. Sterling, though remains vulnerable to signs of weakness in the UK economy and the prospect of further QE from the BoE according to AIB Treasury Services.