Risk appetite during the Asian session today was low despite data showing an improvement in China’s manufacturing activity. However, market participants are being cautious trading in riskier assets as focus is back on the Euro zone.
Recent data showed unemployment is climbing back towards record highs in the Euro-region and CPI data yesterday showed inflation was lower than the European Central Bank’s 2 percent target. The data raised concern that the debt-ridden Euro zone could fall into a deflationary spiral and wreck the economic recovery in the region.
Euro zone inflation fell sharply in October to 0.7 percent, the lowest level in nearly four years. This raises the possibility that the ECB next week will show a little more pessimism about growth prospects and would be more likely to cut interest rates.
Also dampening market sentiment is uncertainty about the Federal Reserve’s monetary policy and when it will being tapering. Yesterday, there was mixed data from the US, with the Chicago PMI showing manufacturing activity in the Chicago region expanded at its fastest rate in 30 years in October but initial jobless claims rose more than expected.
The euro extended its losses in Asia, with EURUSD falling to $1.3538, down from the session open of $1.3582, and has lost 1.4 percent since the close on Wednesday. EURJPY slid to 132.58 yen from Wednesday’s high of 1.35.44 yen. The dollar slipped to 97.80 yen before bouncing to 98.13, but is down from Wednesday’s high of 98.61 yen.