Daily Forex Round-Up: Eurozone Progress Boosts the Single Currency (EUR)

on Dec 4, 2012

On December 4, Reuters reported that the euro advanced to a six-week high, boosted by positive news from the Eurozone periphery. Eurozone-related optimism however weighed on the greenback, which lost ground both versus the euro and the yen.

**Euro Returning to a Six-Week High**
Reuters reports that the euro extended its recent rally in currency markets, reaching a six-week high of $1.3091 against the dollar and 1.2116 francs versus the Swiss franc. The single currency benefitted from Eurozone-related optimism, with Spain formally requesting €40 billion to bail out its banks and Greece planning to buy back its debt.

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“Greece is on track with its debt buy back, Spain came out and said it would take the 40 billion for its banks, and Portugal will get its next round of funding,” commented Heinz-Gerd Sonnenschein, equities strategist at Postbank, as quoted by Reuters. “Market participants were really encouraged by the Greek buy back, so with it looking like Europe is on track, it is now over to the US.”

**Dollar Declines on US Budget Concerns, Eurozone Optimism**
The US currency, however, lost ground against both the euro and the yen, falling as low as ¥81.77. “The US fiscal stalemate is creating a loss of confidence in the dollar,” commented Neil Jones head of European hedge-fund sales at Mizuho Corporate Bank, as quoted by Bloomberg. On December 3, the White House rejected a Republican plan for resolving the fiscal cliff since it did not meet President Obama’s pledge to raise taxes on the rich.

In addition, Eurozone optimism boosted riskier assets and weighed on the greenback. “Overall the Eurozone noises are coming out positive, and I don’t see any turning around there,” pointed out Vishnu Varathan, regional economist for Mizuho Corporate Bank, as quoted by Reuters. “The only real deal-breaker, (which) will send the dollar spiking up and risk really off the table, will be if there is a complete breakdown in the Congress negotiations.”

**Pound at a Four-Week High against the Greenback**
!m[Dollar (USD Extends Losses Versus Euro (EUR), Yen (JPY)](/uploads/story/961/thumbs/pic1_inline.png)The dollar also lost ground against the pound, which rose to a four-week high, as reported by Bloomberg. Britain’s currency gained 0.2 percent to $1.6117 at 11:15 a.m. GMT after advancing to $1.6130, its strongest level since November 2. The pound was little changed at 81.10 pence against the euro. The sterling stayed higher against the dollar although an index by Markit Economics and the Chartered Institute of Purchasing and Supply measuring activity in the UK construction sector fell to 49.3 in November from 50.9 in October, with any number below 50 indicating contraction.
The performance of the pound during the week will largely depend on the Bank of England policy meeting, with Bloomberg reporting that the UK central bank’s Monetary Policy Committee is expected to maintain its quantitative easing target at £375 billion. In addition, the Chancellor of the Exchequer George Osborne will deliver his interim budget to parliament on December 5. “There is some suggestion that the autumn statement will reiterate continued fiscal prudence,” notes Mizuho Corporate Bank’s Mr Jones, as quoted by Bloomberg. “A combination of tight fiscal and a less loose monetary policy means the pound is outperforming.”


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