Euro flat on poor growth data, ahead of ECB meet

London

THE euro was broadly flat on Thursday after preliminary euro zone economic growth data was even more dire than expected, as investors looked ahead to the European Central Bank (ECB) meeting, while the US dollar held near two-week lows.

A preliminary flash estimate of euro zone gross domestic product showed that Europe's economy contracted by 3.8 per cent in the first three months of the year - the sharpest quarterly decline since the time series started in 1995.

"Almost all of the damage happened in the final two weeks of the quarter, showing how remarkably deep a contraction can become under mandated lockdowns," wrote Bert Colijn, senior economist at ING. "A recession like the one we're currently in is unprecedented."

The market focus now is on the ECB, which is printing cash at a record rate as the novel coronavirus pandemic sees European countries' debt surge.

The ECB is under pressure to ramp up its response to the virus. There are some expectations that euro zone policymakers will expand debt purchases to include junk bonds and take other steps to ease conditions in credit markets.

Analysts are not ruling out a move but expect the ECB to more likely to act in June.

"No doubt the ECB will underline that it would implement further measures if required," wrote Commerzbank FX and EM analyst Antje Praefcke in a note to clients. "But at the same time it is likely to point out that fiscal policy in the euro zone has to make its contributions too."

The euro was broadly flat, at US$1.0883, having touched a 10-day high.

The US dollar fell overnight after the US Federal Reserve left the door open to more monetary easing, and positive trial results for a drug to treat Covid-19 also boosted risk appetite.

More countries are taking steps to re-open their economies as coronavirus infections slow, giving some cause for optimism.

Against a basket of currencies, the US dollar touched a two-week low. It came close to six-week lows versus the yen in early London trading, before starting to recover, last at 106.64.

The riskier Australian and New Zealand dollars, which rose overnight as risk sentiment improved and have risen every day for the past week, reversed their gains and dipped on Thursday morning. REUTERS