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Forex Flash: EUR weakens modestly post EU GDP - BTMU

FXstreet.com (Barcelona) - Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the euro weakened modestly recently following the weaker than expected euro-zone Q1 GDP report which further reinforced expectations that the ECB may have to ease monetary policy further ahead to support growth should recessionary conditions continue to prove more prolonged than expected.

He notes that the report revealed that the euro-zone economy contracted for the sixth consecutive quarter in Q1 with leading indicators signalling another contraction appears likely in Q2. He adds that the recession has now proven more prolonged than during the global financial crisis period, although not as deep. Further, he sees that weakness was widespread amongst members with the French economy notably falling back into technical recession. He writes, “French Finance Minister Moscovici reiterated that the broader recession in the euro-zone called for a European-wide policy “to mobilise for growth”.” He sees that strengthening domestic demand in the core members would help economic rebalancing in the euro-zone. He feels that those hopes were boosted yesterday by Germany’s biggest union IG Metall securing a 5.6% pay increase over twenty months for its 770k members in the state of Bavaria in a “pilot” accord recommended by employers for adoption countrywide. He writes, “It also comes at a time when disinflation pressures are building in the euro-zone given rising economic slack.”

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