Forex - Euro softens after euro zone GDP contracts

Investing.com - The euro trimmed early gains against the U.S. dollar and fell to a fresh record low against the New Zealand dollar on Wednesday after official data showed that the euro zone’s economy contracted in the last three months of 2011.

During European late morning trade, the euro was slightly higher against the U.S. dollar, with EUR/USD adding 0.13% to hit 1.3150.

Eurostat said that the euro zone’s gross domestic product shrank by a seasonally adjusted 0.3% during the fourth quarter and grew by just 0 .7% during 2011 as a whole.

The single currency rose to a session high against the greenback earlier after the governor of the People’s Bank of China said he believes the euro zone’s debt crisis can be solved and said that China will become more involved in efforts to resolve the crisis through mechanisms such as the European Financial Stability Facility.

Meanwhile, concerns over a default by Greece lingered after euro zone finance ministers replaced a meeting scheduled for later in the day with a conference call, after failing to receive assurances on how Athens plans to implement austerity measures approved in a parliamentary vote on Sunday.

The euro was slightly higher against the pound, with EUR/GBP up 0.16% to hit 0.8381.

In the U.K., Bank of England Governor Mervyn King said that Britain has drawn up contingency plans for a Greek default.

The comments came after the BoE cast doubts over the possibility of further quantitative easing in its February inflation report after it raised its inflation forecast for two years time to a higher-than-expected 1.8%.

A report earlier showed that the number of people claiming unemployment benefits in the U.K. rose more-than-expected in January, while the unemployment rate held steady at 8.4%, the highest level since 1996.

The single currency was higher against the yen and remained almost unchanged against the Swiss franc, with EUR/JPY adding 0.25% to hit 103.27 and EUR/CHF dipping 0.02% to hit 1.2071.

The yen slumped to a three month low against the euro and the greenback earlier after the Bank of Japan unexpectedly announced that it would increase the size of its asset-purchase program by JPY10 trillion in an attempt to boost growth and protect the economy from the effects of the strong yen.

In Switzerland, a report showed that economic sentiment improved in February, rising significantly for the second consecutive month.

The Centre for European Economic Research (ZEW) said its indicator of economic sentiment improved by 28.9 points to minus 21.2 in February from a reading of minus 50.1 in January.  

Elsewhere, the euro hit a fresh record low against the New Zealand dollar and traded close to a recent record low against the Australian dollar, with EUR/NZD falling 0.56% to hit 1.5660 and EUR/AUD shedding 0.46% to hit 1.2227.

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Earlier in the day, official data showed that retail sales in New Zealand rose 2.2% from the third quarter, well above forecasts for a 1.3% increase.

Elsewhere, a report showed that Australian consumer confidence rose by the most in three months in February as two rate cuts by the country’s central bank late last year improved the financial outlook for households.

The euro was also down against the Canadian dollar, with EUR/CAD shedding 0.29% to hit 1.3082.

Later Wednesday, the U.S. was to release a report on manufacturing activity in the New York region, as well as data on industrial production and the capacity utilization rate. In addition, the Federal Reserve was to publish the minutes of its most recent policy meeting.