Daily Forex Round-Up: Euro (EUR) Retreating from a Seven Week High

Although the single currency was off to a strong start on December 5, climbing to a seven week high against the US dollar on positive Eurozone prospects, weak demand at a Spanish bond auction as well as Eurozone retail sales figures dragged the euro down. Meanwhile, the pound lost ground against the dollar, with the UK Chancellor of the Exchequer George Osborne announcing that the government’s growth forecast had been downgraded.

**Euro Slips on Spanish Auction, Retail Sales Data**
On December 5, Reuters reported that the euro, which advanced to as high as $1.3127, its strongest level since October 18, hit a session low of $1.3061, down 0.2 percent on the day. While Spain and Greece-related optimism had boosted the single currency earlier, Spain’s debt sale fell short of expectations. In addition, data showed that Eurozone retail sales decreased more than estimated in October, dropping 1.2 percent from September.

“There was a little bit of consolidation after the euro’s strong run up, so we are seeing a little bit of retracement after the Spanish bond auction,” noted Marcus Hettinger, global forex strategist at Credit Suisse (NYSE:CS), as quoted by Reuters. Mr Hettinger also noted that while he expected a stronger euro over the next three months, a meeting of the European Central Bank on Thursday and US labour market data due on Friday could prevent the single currency from breaking above $1.32.

**Pound Loses Ground versus the Greenback**
The pound also had a difficult day, falling to a session low of $1.6080 on December 5, as reported by the Financial Times. The sterling eroded some gains versus the single currency, but was still 0.1 percent higher at €1.2315. The pound was dragged down by George Osborne’s Autumn Statement, with Bloomberg quoting the Chancellor as saying that while the “deficit is forecast to go on falling, instead of taking three years to get our debt falling, it’s going to take four.”

**Aussie “Uncomfortably High”**
The Australian dollar, which on Tuesday advanced despite the decision of the Reserve Bank of Australia to cut its benchmark interest rate, was flat at $1.0472 on Wednesday, after hitting a session high of 1.0485, as reported by the FT. The Aussie posted a 0.4 advance versus the yen, to trade above ¥86.
!m[Autumn Statement Weighs On The Pound (FBP)](/uploads/story/973/thumbs/pic1_inline.png)Bloomberg quotes RBA’s Deputy Governor Phillip Lowe as saying that interest rates were “lower than they otherwise would be to offset some of the effects of an uncomfortably high exchange rate.”

**Hong Kong Dollar Hits Trading Band Limit**
The Hong Kong dollar also reached an uncomfortably high exchange rate on December 5, with the FT reporting that the Hong Kong Monetary Authority (HKMA) was forced to intervene when the currency hit the limit of its trading band against the US dollar. Since the Hong Kong dollar is pegged to its US counterpart at HK$7.80, the HKMA must step in if the currency reaches either the upper or the lower end of its trading range of HK$7.75 to HK$7.85.
The HKMA intervened in mid-October for the first time since December 2009. Since then, however, it has sold more than HK$50 billion (£4 billion) in multiple interventions to maintain the peg, as indicated by HKMA and Reuters data. The FT quotes HSBC (LON:HSBA, NYSE:HBC, HKG:0005) economist Donna Kwok as pointing out that the need for further action by the HKMA would depend on “whether investors continue to be as positive on emerging Asia.”