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Dollar Mostly Heading Lower On Monday

Dollar Mostly Heading Lower On Monday

The dollar is losing ground against both the pound sterling and Japanese Yen on Monday, but is up slightly in comparison to the Euro. The so called "sequester" has now taken effect. The automatic budget cuts could threaten the fragile U.S. economic recovery.

Eurozone's falling inflation and rising unemployment may put pressure on the European Central Bank (ECB) to loosen its monetary policy, and the bank is expected to discuss an interest rate cut or other unconventional policies at next week's meeting, Capital Economics Senior European Economist Jennifer McKeown said Monday.

The firm said that the recent rise in unemployment and fall in inflation suggest that euro-zone pay growth will come under more downward pressure in the coming months.

The employment outlook suggests that the situation is not about to improve in the near term, and the weak labor market conditions are expected to add to the drag on consumer spending from fiscal tightening, the economist noted.

The dollar slipped to an early low of $1.3030 against the Euro on Monday, but has since risen to around $1.2990.

Eurozone investor confidence declined in March after improving for six months in a row, data released by the think-tank Sentix showed Monday. The index fell to -10.6 in March, the weakest since December 2012, from -3.9 in the prior month. The March figure was worse-than the expected level of -4.6 points.

Eurozone's producer price inflation slowed to the lowest level in six months in January, giving room for the European Central Bank to lower its policy rate at this week's meeting to revive the flagging economy.

Producer price inflation slowed to 1.9 percent from 2.1 percent in December, statistical office Eurostat said on Monday. The latest figure matched economists' expectations. The rate of growth was the lowest since July 2012, when prices rose 1.6 percent.

The marked fall in Eurozone's producer price inflation in January, which is in line with the latest consumer price data, indicates that the European Central bank (ECB) has ample scope for lowering interest rates at this week's meeting, IHS Global Insight Chief UK and European Economist Howard Archer said Monday.

U.K. banks' reduced their lending to firms and households in the fourth quarter dampening hopes that the lending scheme will boost recovery, data from the Bank of England showed Monday.

The net lending of banks participating in the Funding for Lending Scheme, shrank GBP 2.4 billion during the quarter ending December.

About 11 participants made total FLS drawdowns of GBP 9.5 billion, taking the total amount drawn to GBP 13.8 billion since the programme started in August.

U.K. manufacturers have ambitious strategies for growth, but they are not investing enough to deliver them, a survey from EEF, the manufacturer' organization showed Monday.

According to the survey of over 250 companies, nearly nine in ten firms want to invest to improve productivity, three-quarters to adopt new technology and seven in ten to develop capacity to manufacture new products.

Although the trends are positive, investment is still 14 percent below its 2008 peak. A fifth of manufacturers feel they are falling behind their international competitors.

The greenback rose to an early high of $1.4998 against the pound sterling Monday, but has since fallen to around $1.5070.

The British construction activity declined at the sharpest pace since October 2009 on solid reduction in output and new works, a survey by Markit Economics showed Monday. The Markit/Chartered Institute of Purchasing & Supply Purchasing Managers' Index fell to 46.8 in February from 48.7 in January. Economists had forecast the index to rise to 49. Readings below 50 suggests contraction of the sector.

Haruhiko Kuroda, the Governor-designate of the Bank of Japan, said on Monday he will do whatever is needed to end deflation, which has stymied growth in the world's third largest economy in the past 15 years.

The BoJ should send out a clear message that it will do whatever is needed to reverse the prolonged price falls, Kuroda, a long-time proponent of inflation targeting, said at a confirmation hearing in Parliament.

He opined that the size and scope of assets that the central bank is purchasing are not enough to achieve the 2 percent inflation target, fueling expectations that BoJ will embark on stronger monetary easing once his nomination is confirmed.

The buck reached an early high of Y93.717 against the Japanese Yen on Monday, but has since pulled back to around Y93.335.

The monetary base in Japan climbed 15.0 percent on year in February, the Bank of Japan said on Monday, standing at 129.314 trillion yen. That follows the 10.9 percent spike in January and the 11.8 percent jump in December.

by RTT Staff Writer

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