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Forex Flash: Eur PMIs dampened Investor recovery expectations - BTMU

Lee Hardman, FX analyst at the Bank of Tokyo Mitsubishi UFJ notes that the release of the latest euro-zone PMI surveys for February served to dampen investor expectations over the ongoing economic recovery in the euro-zone.

He comments that the euro-zone composite PMI moved deeper into in contradictory territory in February consistent with the economy contracting for the fourth consecutive quarter by around -0.2-0.3% in Q1 according to Markit. Outside of Germany whose economy appears to be rebounding in Q1, there is little evidence yet of the positive contagion ECB President Draghi has referred to with the sharp improvement in financial market conditions not yet feeding through significantly to the real euro-zone economy.

Further, he adds that surveys support the view that the Eurozone economy can’t handle a stronger euro and that the ECB may have to ease monetary policy again later this year if growth continues to disappoint. He writes, “The focus today will be upon the announcement from the ECB about the size of the first repayment by European banks of the second three-year LTRO. Consensus is looking for a repayment of around EUR125.0 billion. A larger than expected repayment today is likely to have a more limited positive impact upon the euro as the market is more comfortable that euro-zone short rates will remain low especially as the probability of an ECB rate cut is rising again.”

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