February 28 Thursday
After a lackluster consolidation stage between 1.3160 and 1.3140 against the dollar in the Asian session, the euro fell in Europe on the news that the Netherlands will be unable to meet its budget deficit target set by the European Union for this year and 2014.
There was also an unsubstantiated market rumor of a sovereign downgrade to Netherland’s credit rating, which may have been based on the widening spread of the Dutch 10-year DSL bond yield to the German bund which rose 1.3 basis points today. (currently at +28 bps by 10:30am GMT). The euro rates fell quickly from 1.3140 to 1.3110 on this rumor.
The Dutch budget deficit forecast called for a 3 percent target for this year and 2014. However, the government agency planning board said that the deficit will be 3.3 percent of the gross domestic product in 2013 and 3.4 percent in 2014.
The euro’s retracement to 1.3100 is also linked to month-end position adjustments of the Japanese Yen.
Yesterday, ECB President Mario Draghi said that the Eurozone inflation should be “significantly lower” than 2 percent in 2014, adding that the ECB is nowhere near to even considering an exit from its accommodative monetary policy stance.