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European Session – Euro falls to fresh 1-month low, oil crashes below $34 on rising inventories

The euro weakened further against the dollar today to touch a fresh one-month low of 1.0828. Eurozone PPI data (producer price index) released today highlighted the effects of falling oil prices on inflation. The monthly PPI reading fell in January to come in at -1%.

Comments from Bank of France Governor Francois Villeroy de Galhau today, who is on the ECB’s Governing Council, said that it has tools that it is ready to use. He was testifying at the French legislature today. He referred to low inflation and low inflation expectations and warned of more stimulus measures to come at next week’s ECB meeting. Meanwhile, remarks today from ECB Governing Council member Benoit Coeure suggested that arguments for more policy easing remain firmly intact.

Sterling surprisingly rallied against the dollar today and rose above the key 1.40 level. Prior to rising, the pound fell to 1.3913 following disappointing UK construction PMI data which grew at its slowest pace in 10 months in February. The index fell to 54.2, against expectations of a rise to 55.5 from January’s 55.0 reading.

The US dollar hit a two-week high against the yen at 114.54 before easing back down below the key 114 yen level. Helping lift the greenback was a strong private jobs report today. The ADP payrolls data showed a gain of 214,000 jobs in February, above economists’ expectations of 190,000 jobs and more than January’s 193,000.

Focus now turns to Friday’s all-important nonfarm payrolls report which the Fed will closely scrutinize as it takes this jobs data into account when making monetary policy decisions. Most analysts’ forecasts are for the US economy to have added 185,000 jobs in February compared to 158,000 the month before. If the jobs report comes in better-than-expected, this would follow a series of strong US data recently, including GDP, CPI and durable goods orders and this would strengthen the case for at least another rate hike this year.

Oil prices were doing well until the release of the EIA crude inventories weekly report. US oil futures traded above $34 a barrel before crashing below this level on the disappointing data which showed crude inventories rose to 10.37 million barrels in the week ending February 26. The expectation was for 3.5 million barrels.

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