The dollar is little changed overall against its major competitors on Friday, while equity markets are gaining ground. There were no U.S. economic reports released at the end of the trading week, but European markets climbed on strong German data.
Investors will be watching for the results of the Italian election, which will be held this weekend. The potential return of former Prime Minister Silvio Berlusconi or a hung parliament could jeopardize the government's reform policy agenda.
Eurozone banks are set to repay lower than forecast amount they had borrowed at the second round of the three-year loans extended by the European Central Bank last year. However, the repayment would come in much ahead of the due date.
The ECB announced on Friday that 356 banks will make a repayment of EUR 61.09 billion on February 27, the first day the pre-payment could be made. The figure was below the EUR 130 billion expected by analysts.
Eurozone is set to contract for the second straight year in 2013 as the region struggles with a deep financial crisis that is currently holding back spending and investment, but pushing up unemployment.
In its winter forecast released on Friday, the European Commission said the euro area economic activity is now bottoming out and it will gradually accelerate.
The 17-nation bloc is projected to shrink 0.3 percent this year, in contrast to the November estimate of 0.1 percent growth. The weakness seen towards the end of 2012 implies a low starting point for the current year, the commission said.
According to the report, quarterly gross domestic product developments are somewhat more dynamic than the annual figures suggest. GDP in the fourth quarter of 2013 is forecast to grow by 0.7 percent from the same period of 2012.
The strengthening of the euro against other major currencies is not a threat to the growth prospects of the Eurozone, and governments need to keep up with reforms while the region recovers from the debt crisis, European Central Bank (ECB) Governing Council member Luc Coene said.
The current exchange rate of the euro is "below the average level", and there is "absolutely no problem" with its current level, Coene said while presenting the National Bank of Belgium's annual report.
The worse-than-expected decline in Eurozone's private sector activity indicates that the region will likely contract further in the first quarter, dampening hopes of a recovery, Capital Economics European Economist Ben May said Friday.
The dollar weakened to a low of $1.3244 against the Euro early Friday, but has since bounced back to around $1.3170.
Sentiment among German businesses improved to a ten-month high in February, fueling expectations that the economy could get back on its feet early this year despite widespread weakness in Eurozone economy.
The headline business climate index rose for a fourth straight month to reach 107.4 in February from January's revised reading of 104.3, a report released by the Ifo Institute showed Friday. The index was expected to see a more modest increase to 104.9.
The German economy contracted 0.6 percent in the fourth quarter as initially estimated, final data from Destatis showed Friday. The fourth quarter downturn follows a 0.2 percent rise in the third quarter.
If there are monetary policy tools that are more reliably effective in boosting demand, they should be used, Bank of England policy maker David Miles said in a speech late Thursday. The BoE has a good case to expand quantitative easing further, he noted. In his speech, he set out a mathematical model to explain the need for more quantitative easing.
The greenback has remained in a trading range against the pound sterling on Friday, hovering around the $1.5250 level.
Japanese Finance Minister Taro Aso said Friday that the next Bank of Japan governor does not necessarily have to be someone from the Finance Ministry, but should have experience in managing a large organization.
The buck is up slightly against the Japanese Yen on Friday, but has traded in a range around the Y93.400 level for the majority of the session.
by RTT Staff Writer
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