Euro exchange rate falls below 1.3 dollars

The euro exchange rate today dropped to its lowest level against the dollar in the last four months on global currency markets ahead of the release of a key employment report in the U.S., as well as new bond issuances from peripheral eurozone members next week.

Caution prevails in the foreign exchange markets ahead of the afternoon release of a key macroeconomic indicator in the U.S. – the employment report from the U.S. Department of Labor. Given that the data on the number of employees in the U.S. private sector from ADP pleasantly surprised on Wednesday, reaching 300,000 in December, or three times more than expected, expectations are optimistic regarding today’s employment report from the U.S. government. Analysts estimate that in December, the number of employees in the largest economy in the world increased by 175,000, while the unemployment rate is expected to fall from 9.8 to 9.7 percent.

In morning trading, the euro weakened by 0.2 percent against the dollar, to 1.2975 dollars, and during the morning it even dropped to 1.2965 dollars, the lowest level since mid-September last year. Alongside the euro, the dollar also strengthened against the yen by 0.2 percent, to 83.5 yen. In relation to a basket of 6 international currencies, the dollar index .DXY rose by 0.3 percent.  “It will be difficult to achieve a pleasant surprise regarding the employment report in the U.S. for December, as many investors have already prepared for excellent data. A somewhat more aggressive market reaction can only be expected if the report shows that the number of employees increased by more than 200,000,” said John Kicklighter, currency strategist at Daily FX.

The euro exchange rate, however, is under pressure from the upcoming new bond issuances from a number of peripheral eurozone member states next week. “The bond issuances next week in Spain, Portugal, and Italy will be a good test of investor sentiment. The fear of excessive bond supply in the short term supports the rise in prices of German bonds at the expense of bonds from peripheral members,” says Nick Stamenkovich, strategist at Ria Capital Management in Edinburgh.  This morning, the difference between yields on 10-year Portuguese bonds and the corresponding German bonds increased by 13 basis points, to 433 basis points, while the difference between Spanish and German 10-year bonds increased by 6 basis points and now stands at 264 basis points. (H)