Euro Jumps Higher

Source: Forexnews.com

The euro continued to climb higher against the sterling and dollar, rallying past the 0.80-level against the sterling and rising to 1.5863 versus the greenback. Economic data from the Eurozone released overnight saw Q4 GDP revised lower as expected to 0.4% q/q and 2.2% y/y. Meanwhile, Germany’s trade surplus improved in February to 16.4 billion euros, up from 16.1 billion euros a month earlier. Germany’s trade surplus beat out estimates for a decline to 15.8 billion euros and comes despite the recent strength in the single currency.

The ECB policy decision will be announced at 7:45 AM, with the Bank expected to leave rates unchanged at 4.0%. The subsequent press conference by ECB President Trichet will be closely analyzed for further hawkish comments highlighting the Bank’s focus on inflation. We expect the ECB to remain on hold until Q4 of this year, at which point we look for a 25-basis point rate cut. Nevertheless, with the FOMC and BoE both likely to cut rates, the ECB’s hawkish rhetoric will continue to provide a floor for the euro as it maintains its buoyant tone against the sterling and dollar.