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 The euro was almost flat at $1.2950 after plummeting 1.6 percent on
Thursday, its steepest fall in almost three years, despite upbeat
data from Germany, showing industrial output in the euro zone's
biggest economy increased by the most in almost 2-1/2 years in July.
The common currency stayed firmly below the significant $1.30 level,
leaving the euro well on track for eight straight week of losses -
the first time that has happened since its introduction in January
1999.
"If the primary reason for the ECB deposit rate cut yesterday was to
weaken the euro, it has been successful," said Chris Turner, a
strategist with Dutch bank ING in London.
The impact of the ECB's bold moves was also reflected in the bond
market. The rate cut sent short-term bond yields into negative
territory in Germany, France, the Netherlands and Austria, giving
investors an overwhelming incentive to sell euros for
higher-yielding assets elsewhere.
Spanish and Italian 10-year yields fell 5 to 7 basis points to 2.11
percent and 2.31 percent respectively. Italy's hit a new record low
of 2.28 percent earlier in the day.
"The main beneficiaries are the peripheral markets and I still think
there is scope for spreads to narrow over Bunds, particularly in
Spain," said Nick Stamenkovic, bond strategist at RIA Capital
Markets.
"People are still searching for yield. While the ECB underpins the
short end of the curve, investors are going to look to extend
duration."
European shares, however, retreated from multi-year highs scaled
after the ECB rate cut, with investors taking some profits ahead of
market-sensitive U.S. non-farm payrolls data.
The FTSEurofirst 300 index of top European shares was down 0.6
percent, retreating from a 6-1/2 year high, but still set to record
its fourth consecutive weekly gain.
FOCUS ON U.S. JOBS
Investors keenly waited for the latest read on the U.S. labour
market at 1230 GMT. Analysts expect the pace of job creation to have
picked up slightly in August, with a rise of 225,000 jobs on
non-farm payrolls.
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"If we get a strong U.S. payrolls number this afternoon, and I
suspect we will, as well as a mild pick-up in wage growth … that
will give the dollar a further lift going into the start of next
week," Kit Juckes, macro strategist at Societe Generale, said.
"There’s a reasonably high chance, despite the market positioning,
that we try to push the euro down even further now."
With the U.S. dollar flying, commodities had to cheapen to stay
attractive and gold struck a three-month low at $1,256.90 an ounce
before clambering back to $1,265. Brent crude oil was 0.1 percent
higher after shedding more than a dollar overnight.
Markets were also eyeing whether or not the United States and Europe
pushed ahead with plans for new sanctions on Russia at a NATO
meeting in Wales.
Ukrainian President Petro Poroshenko and the main pro-Russian rebel
leader said they would both order ceasefires on Friday, provided
that an agreement is signed on a new peace plan to end the
five-month war in Ukraine's east.
(Additional reporting by Jemima Kelly, Marc Jones and Marius Zaharia
in London and Wayne Cole in Sydney; Editing by Ruth Pitchford)
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