Daily Forex Round-Up: the Single Currency (EUR) Strengthens against the Greenback (USD)

on Dec 11, 2012

The euro, which was off to a weak start of the week on Monday with Italy’s Prime Minister Mario Monti contemplating resignation, advanced on December 11 on improved Eurozone sentiment. The euro’s gains against the dollar, however, were also supported by speculation that the US Federal Reserve will announce additional stimulus measures following its final policy meeting this year.

**Euro Up versus Most Major Counterparts**
On December 11, Bloomberg reported that the single currency advanced versus most of its 16 major peers, gaining as much as 0.4 percent against the US dollar to $1.2995 at 9:12 a.m. EST. The euro rose versus the yen (JPY) as well, gaining 0.4 percent to trade at ¥107.01. Although the single currency was under pressure on Monday following the announcement of Italy’s Prime Minister that he would step down, the euro benefitted after a German report showed investor confidence jumped in December. In addition, Spain sold more than its target amount at a bill auction, which also contributed to improved Eurozone sentiment.

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“Improved economic sentiment is euro positive,” pointed out Aroop Chatterjee, a currency strategist at Barclays Plc (LON:BARC), as quoted by Bloomberg. “The market is focused on the US and fundamentals in Europe, where indicators still show a constructive view for key core European countries.”
Greenback down ahead of FOMC Meeting Opening
In the US, the policy meeting of the Federal Open Market Committee (FOMC) starting today is weighing on the greenback, with analysts expecting the Fed to announce another Treasury bond-buying plan to replace its expiring “Operation Twist” programme. “The Fed is going to act this week, which is keeping pressure on the dollar,” noted Jane Foley, a Rabobank senior currency strategist, as quoted by Bloomberg. “The weakness of the dollar is keeping a floor under euro-dollar, limiting any further fallout that may come from Italy or the Eurozone.”

!m[The Swiss Franc (CHF) Suffers From Deposit Charges](/uploads/story/1015/thumbs/pic1_inline.png)Bloomberg reports that the dollar index, which tracks the movement of the dollar versus the currencies of six US trading partners, dropped 0.3 percent to 80.096, the biggest decline since December 4.
Franc Weaker after UBS Introduces Fees on Deposits
December 11 proved to be a difficult day for the Swiss franc, which fell 0.3 percent against the single currency to 1.2111 per euro, and was little changed at 93.38 centimes per dollar. Earlier, however, the franc dropped as much as 0.4 percent to 1.2127 versus the euro, the weakest since December 6.

The franc depreciated following the announcement of UBS AG (NYSE:UBS), Switzerland’s biggest bank, that it would impose negative interest rates on financial institutions holding franc-denominated cash balances. The Financial Times quotes UBS as saying that “due to the continued prevailing market situation affecting the Swiss franc,” it would start applying a charge for credit balances maintained by financial institutions in their Swiss franc cash clearing accounts.” The UBS news follows a similar move by Credit Suisse (NYSE:CS) which last week announced that it would also charge fees and pay negative rates on some franc deposits.
The FT reports that the UBS decision spurred speculation that the moves of both Swiss banks could herald a similar move by the Swiss National Bank at its meeting on December 13.


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