Daily Forex Outlook: Euro (EUR) Extending Gains

on Dec 5, 2012

The euro, which on Tuesday reached a six week high, is extending gains on Wednesday, with Reuters reporting on December 5 that the single currency hit a seven week high against the dollar boosted by efforts for solving the debt problems of both Greece and Spain. The greenback in turn was dragged down by expectations for additional bond-buying by the US Federal Reserve. Easing speculation weighed on the yen as well, with a Bank of Japan (BOJ) official signalling that the central bank might debate further monetary stimulus in December.

**Euro Hits a Seven-Week High**
Reuters reports that the single currency advanced to as high as $1.3125, its strongest level since mid-October, and was later trading at $1.3110, up 0.15 percent from late US levels. The euro’s gains versus the greenback were prompted by positive prospects about the debt problems in Greece and Spain.
“Things seem to be improving quite rapidly in Europe. Spain is now injecting funds to its banks, which were at the heart of the problems. Greece looks on its way to secure funding,” commented Takako Masai, manager of forex at Shinsei Bank (TYO:8303), as quoted by Reuters. “The crisis appears to be heading for an end for now.”

In addition, the euro also posted gains versus the Swiss franc, advancing 0.1 percent and reaching 1.2153 at one point on December 5. The single currency’s upward movement against the franc was on account of a franc selloff after Switzerland’s largest banks such as Credit Suisse (NYSE:CS) indicated that they would charge fees and pay negative rates on some franc deposits.

**Greenback under Pressure**
Bloomberg reported on December 5 that the US dollar declined against most of its major counterparts, with President Obama highlighting the gap between Democrats and Republicans in his first interview since his re-election. The President pointed out that any deal would have to include higher tax rates for the wealthiest, countering a Republican proposal.

!m[Dollar (USD) Down On Easing Prospects Amid Fiscal Cliff Disagreement](/uploads/story/964/thumbs/pic1_inline.png)The dollar was also dragged down by expectations that the Fed would unveil a fresh bond-buying scheme to replace its Operation Twist, at its policy meeting on December 11-12. “The Fed is likely to take fresh steps to replace the Operation Twist,” noted Makoto Noji, senior strategist at SMBC Nikko Securities, as quoted by Reuters. “Speculation of more aggressive easing in Japan is all over the place, and Australia also cut rates. By default the euro rose.”

**Yen Weaker on Easing Speculation**
Easing speculation also weighed on the yen, pushing it down against 13 of its 16 major counterparts, Bloomberg reported on Wednesday, with the BOJ Deputy Governor Kiyohiko Nishimura noting that the central bank was ready for action when needed. “We took action in September and October because what we thought were risks back in the summer materialised,” Mr Nishimura said, as quoted by Reuters. “We must debate and consider whether that was enough, taking into account various data which came out since then.”
The yen weakened against the dollar, which climbed 0.4 percent to ¥82.22. The single currency also advanced against the yen, hitting a seven and a half month high of ¥107.95, to later trade at ¥107.80, or 0.6 percent higher.


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