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ISEQ lower-Where goes the Euro?

Friday, March 22 09:21:23

The ISEQ is lower this morning at 3,917, down 14 points as Cyprus continues to weigh on investor sentiment.

The yo-yo that has been the Euro is encountering further turbulence in recent days and AIB Treasury has some comments on likely currency directions:

The euro softened yesterday, dropping back to around $1.29 after the release of disappointing flash PMI data which indicated that the downturn in the economy deepened in March. Expectations had been for some slight improvement. The euro steadied around this level in later trading.

While the situation in Cyprus is also weighing on the euro, there was some relief in the news that the ECB is to continue providing emergency liquidity assistance until Monday, giving the country until then to raise the E5.8bn necessary to secure a bailout deal. Focus will remain on Cyprus today with parliament to debate measures to avert the crisis this morning and with the news that Russia will not be providing any finance. Meanwhile, S&P has cut Cyprus's credit rating further into junk status. However, attention will also be on the influential German Ifo index, especially after yesterday's weaker German PMI data.

The yen, meanwhile, firmed against the dollar yesterday, though within recent ranges. While the new BoJ Governor, Haruhiko Kuroda, said in his press conference that he would take all possible measures to achieve Japan's 2pc inflation goal, his comments were less dovish than many in the market had expected. Indeed, he said that the BoJ does not have to rely on currency moves to escape deflation.

Furthermore, he gave no indication that he intends to call an early policy meeting ahead of that scheduled for 3/4 April.

Sterling saw a three week (close to $1.5210) dollar high and five week euro peak (below Stg0.849) yesterday morning, after much stronger than expected UK retail sales figures and an improvement in the public finances in February. There was also some paring back of expectations of further QE measures.

While sterling remains close to these highs it has dropped back below $1.52 and resistance at this level, along with ongoing scepticism about the UK economic outlook, may cap further gains according to AIB Treasury.