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12.12.2011 08:39

Forex: Weekly’s review

In first half of Monday the euro advanced as Italy’s cabinet approved a plan to cut its deficit before a European summit on the region’s sovereign debt crisis. Italian Prime Minister Mario Monti announced 30 billion euros of austerity and growth measures yesterday. The premier will present the package, which includes a tax on luxury goods, resurrects a property levy on first homes, and forces many workers to delay retirement. The proposal will go before both houses of parliament. The euro appreciated after people familiar with the negotiations said a proposal to channel European Central Bank loans through the International Monetary Fund may deliver as much as 200 billion euros ($269 billion) to fight the crisis. But later the euro fall as the European ratings story from the FT is circulated and receives attention, FT report asserting that S&P has warned Germany, France, Netherlands, Austria, Finland and Luxembourg that their ratings are at risk because of the EU crisis. Earlier the euro advanced after France and Germany said they want a rewrite of the European Union’s governing treaties to tighten economic cooperation in the region. The 17-nation currency was supported as Italy’s cabinet approved a deficit-cut plan, easing concern the region’s debt crisis in worsening.

On Tuesday the euro fell against yen after Standard & Poor’s warned it may downgrade the European Financial Stability Fund, reinforcing concern that policy makers haven’t contained the region’s debt crisis. The 17-nation euro fluctuated against the dollar as U.S. stocks rose. The euro area’s six AAA rated countries are among those placed on a negative outlook, and their ratings may be cut depending on the result of a summit of European leaders on Dec. 9, S&P said yesterday in a statement. The company said ratings may be cut by one level for Austria, Belgium, Finland, Germany, the Netherlands and Luxembourg, and by up to two levels for the other governments.

On Wednesday the euro declined after a German government official said the nation rejects proposals to combine current and permanent euro-area rescue funds. Germany rejects proposals to combine the current and permanent euro-area rescue funds, the government official told reporters in Berlin today on condition of anonymity because the negotiations are private. The official’s comments came after the Financial Times reported yesterday that EU leaders may agree on a package including the existing 440 billion euro bailout fund and a new 500 billion euro facility. Economists predict the European Central Bank will cut its benchmark interest rate at a policy meeting.

But later the euro rose against the dollar, erasing earlier losses, as some stocks advanced and optimism increased that European leaders will be able to agree on measures to help solve the region’s debt crisis.

On Thursday the euro fell after European Central Bank President Mario Draghi said he didn’t signal stepping up bond purchases to spur growth. The euro reached the lowest level this month versus the greenback, reversing brief gains, after Draghi’s comments damped speculation that the ECB would expand its bond- buying role to stem the region’s debt crisis. Draghi said during a press conference in Frankfurt that he was “kind of surprised by the implicit meaning” that was given to his comments last week when he said the ECB could follow faster fiscal union with “other elements.”

On Friday the euro rose against the dollar and yen after government leaders holding all-night talks in Brussels added 200 billion euros ($267 billion) to their crisis-fighting capacity and toughened anti-deficit rules. The 17- nation currency fell earlier as U.K. Prime Minister David Cameron said there was “fundamental disagreement” in European Union talks in Brussels and as Finland threatened to withdraw from the permanent bailout fund if changes to decision making are introduced. Finland is ready to withdraw its support from Europe’s permanent rescue mechanism if the Nordic country’s condition of unanimous decision making is ignored, Finance Minister Jutta Urpilainen said. Europe’s leaders last night agreed on the need for a “qualified majority” to speed up decision-making and prevent individual countries from blocking bailouts.

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