2009.01.0608:14:00UTC+00Euro eases further against most majors

The common currency of Europe edged further down against other major opponents in early trading on Tuesday after a report showed that the Purchasing Managers Index or PMI for Eurozone service sector dropped in December. The euro tumbled to new multi-week lows against the dollar, the pound and the yen.

According to Markit Economics, the Eurozone services PMI declined to 42.1 in December from 42.5 in November. Economists had expected a reading of 42. The indicator for the manufacturing sector dropped to 33.9 in December from 35.6 in November. Consequently, the composite index fell to 38.2 from 38.9 in November. That was the lowest reading since the survey began in 1998. The latest composite reading was also down from the flash estimate of 38.3. A PMI reading above 50 indicates expansion in the sector, while below 50 suggests contraction.

Meanwhile, a flash estimate from the Eurostat showed today that the Euro area annual inflation slowed more than expected to 1.6% in December. In November, the rate was 2.1%. Economists had expected the inflation rate to ease to 1.8%.

At the same time, French consumer confidence dropped in December after showing an improvement in November as households showed increased pessimism regarding future unemployment and personal financial outlook. France's seasonally-adjusted consumer confidence indicator dropped to minus 44 in December from minus 43 in November, the statistical office INSEE said today. The reading was in line with economists' expectations.

The euro has been in a downward channel against its US counterpart from the beginning of this month as investors heavily speculate that the European Central Bank may cut its rates again next week. The euro reached 1.3315 against the US dollar by 7:25 am ET, the lowest level since December 12, 2008. This may be compared to Monday's close of 1.3636. On the downside, the euro may find support near 1.326. The pair is presently trading at 1.3329.

The ECB meets to discuss rates on January 15. Markets have largely priced in a 50 basis point cut, with some investors betting on a 75 basis point move after the last such reduction in December. The ECB has cut rates by 175 basis points to 2.5 percent since October as inflation decelerated rapidly from a July peak of 4.0 percent along with a sharply slowing economy and falling oil prices.

Against the Japanese yen, the euro dropped to a 15-day low of 125.20 by 7:30 am ET. The euro has been trading lower against the yen since early in the Asian session today as investors weighed a Bank of Japan report showing Japan's monetary base grew 1.8 percent on year in December standing at 92.435 trillion yen. The euro-yen pair that closed yesterday's North American session at 127.33 is currently trading at 125.77. If the euro drops further, it may likely to target 124.2 level.

The single currency also weakened against the Swiss franc in early trading, slipping as low as 1.4979 by 6:05 am ET. The euro-franc pair is presently trading at 1.5019 compared to yesterday's close of 1.5125.

Against the pound, the common currency declined to near a 3-week low of 0.9104 by 5:10 am ET. The euro gained a few pips versus the sterling shortly thereafter and the pair is currently quoted at 0.9164. The euro-sterling pair closed Monday's deals at 0.9277.

Investors are still weighing Tuesday's early morning report showing consumer sentiment in Great Britain moved to the lowest point on record in December. The Nationwide Building Society said today that its consumer confidence index for the U.K. declined 4.0 points last month, to a reading of 47.0, the lowest in the four-year history of the survey.

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