LONDON (AFX) - The euro weakened against major currencies in early trade on ongoing signs that the euro zone is no longer immune to the U.S. downturn, dealers said.
Dealers said yesterday's softer-than-expected German Ifo index of business confidence, as well as European Central Bank chief economist Otmar Issing's warning that growth prospects are not as bright as earlier thought, are pushing the euro lower.
They said mounting concern that the ECB may have held off cutting rates for too long is a negative factor for the single European currency.
WestLB's John Davies said in a research note that rate cut hopes for the euro zone have risen.
"Today's disclosure of France's consumer spending level for February and Italy's consumer confidence level for March should contribute to uphold the rate cut expectations for euroland," he said. French household consumption of manufactured goods fell 0.9 pct in February, the statistics office Insee said. In addition, French finance minister Laurent Fabius is expected to announce a reduction in the government's growth forecast today, GNI said in a research note. 4cast currency strategist Chris Furness said a German newspaper report that E.ON AG's supervisory board will next week decide on a bid for Powergen further weighed on the euro. According to Handelsblatt, E.ON will offer a 30 pct premium on Powergen's current share price of 6.9 stg.
"Now that is lots and lots of pounds because the market cap last night was 4.5 bln stg, so I would imagine that's a good enough reason to sell the euro," he said.
PowerGen said talks continue that may or may not lead to an offer for the company.
Dealers said until then, there had been little movement in the market beyond the rise in the dollar against the yen, on concerns over further worsening of supply and demand conditions for the Japanese currency.
"With dollar/yen, we're dashing up against the 124 barrier and when that goes, it'll probably woosh through," Furness said.
From the U.S, the main news will be this afternoon's weekly initial jobless claims, the most up-to-date indicator of labour market activity.