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20.12.2010 13:56

European session review: The euro weakened on speculation European nations will struggle to raise funds after rating companies downgraded the creditworthiness of Ireland and threatened additional cuts.

The single currency depreciated versus 14 of 16 major counterparts, falling to two-week lows against the dollar and the yen, as the European Central Bank warned of “concerns” about Irish legislation to fix its banking system. The Swiss franc rose to a record against the euro as investors sought a refuge from the sovereign-debt crisis. Data this week may show U.S. gross domestic product grew at a faster pace than estimated earlier.

“Sentiment is clearly bearish for the euro,” said Stephan Maier, a foreign-exchange strategist at UniCredit SpA in Milan. “The ratings risk is clearly pointing to still weaker ratings in the euro periphery. We expect as well the final reading of the third-quarter U.S. GDP so this will favor the dollar.”

The euro slipped 0.1 percent to $1.3171 as of 07:05 a.m. in New York, after declining to $1.3125, the weakest since Dec. 2. The common currency fell 0.4 percent to 110.35 yen, from 110.77 yen, the lowest since Dec. 7. The U.S. currency traded at 83.82 yen from 83.78 yen.

Moody’s Investors Service lowered Ireland’s credit rating by five levels to Baa1 on Dec. 17, the day after it placed Greece on review for possible downgrade. Irish bonds fell. Standard & Poor’s put Belgium on negative watch last week.

The cost to insure French government debt trebled this year to about 102 basis points on Dec. 17, approaching the record 105 basis points reached on Nov. 30, according to data provider CMA.

Credit-default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody’s, according to the New York-based firm’s capital markets research group.

Data from the Commerce Department on Dec. 22 will show U.S. gross domestic product expanded at a 2.8 percent annual pace in the third quarter, quicker than the 2.5 percent estimate published last month. Consumer spending rose 0.5 percent in November after a 0.4 percent increase in October, a separate survey showed before the Dec. 23 report.

“The U.S. dollar will track higher this week as market forecasts for the economic-growth revisions and personal- spending reports are a bit underdone,” said Joseph Capurso, a Sydney-based currency strategist at Commonwealth Bank of Australia, the nation’s largest lender. “Overlay that with ongoing concerns, downgrades and the like in Europe and it’s difficult to see the euro climb higher.”

The Korean won touched a three-week low against the dollar as military tensions with the North damped demand for the nation’s assets and after the government proposed tighter curbs on capital flows.

A levy is planned for foreign-currency borrowing by banks, the government said yesterday. South Korea today commenced a live-firing drill on Yeonpyeong Island, a month after North Korea shelled the island close to the disputed sea border off the peninsula’s west coast, killing four people.

“Geo-political tensions from the Korean region have popped up again this morning which has served to keep the ‘risk trade’ on the back burner,” Tim Waterer, a foreign-exchange dealer at CMC Markets in Sydney, wrote in an e-mailed note.

The won dropped to as low as 1,172.25, the weakest since Nov. 24, before trading at 1,150.25, from 1,152.58.

Australia’s dollar traded near a one-week low against the yen as concerns about Europe’s debt crisis and tensions on the Korean peninsula sapped demand for higher-yielding assets.

The Australian dollar was little changed at 83.03 yen, from 82.98 yen. It earlier touched 82.74, the weakest since Dec. 13.

Surveys of strategists and economists by Bloomberg News show none of the so-called commodity currencies are likely to strengthen next year.

“The commodity currencies are at extremes,” said Ken Dickson, a money manager who helps oversee $240 billion at Standard Life Investments in Edinburgh. “The Aussie dollar is fully valued. The upside is limited and we would not be advocating long positions.”

EUR/USD: traded within $1.3130/80 range.

GBP/USD: got support at $1.5475 and bounced to the minor resistance $1.5550.

USD/JPY: traded within Y84.10-Y83.80.

European data for Monday starts at 0700GMT with German PPI data for November, while at 0900GMT, ECB current account data is due. At 1500GMT it is back to Europe for the release of EMU flash consumer confidence data for December.

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