In US trade, the euro saw some modest buying interest as Spain announced an optimistic deficit reduction plan, and traders speculated that QE3 was again on the cards after a disappointing non-farm payrolls report.
The euro clearly benefitted from news of Spain’s planned deficit reduction to 5.3% of GDP, from 8.5%, which would be an impressive achievement given GDP is expected to shrink 1.7%. In light of a projected 4.4% contraction in domestic demand, the forecast size of some fiscal receipts is questionable, and hence there is a lot of scepticism over whether the deficit reduction target can be achieved but it is certainly a step in the right direction. The surprisingly weak non-farm payrolls report also led to some USD weakness (and resulting risk currency strength), as traders speculated that QE3, which was seemingly off the cards last week after the release of the FOMC meeting minutes, was now potentially back on the table.
Having ended yesterday’s Australian session around the 1.3065 level, the euro edged higher to eventually close US trade at 1.3106. Upon reopening for the Asian session, the euro is little changed and continues to trade in the 1.3100- 1.3110 range.