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19.01.2011 13:14

EU session review: Dollar declines to eight-week low versus Euro before housing, jobs reports

Data released
09:00     EU(16)     Current account (November) adjusted, bln     -4.0    -    -9.6 (-9.8)
09:00     EU(16)     Current account (November) unadjusted, bln     -6.0    -4.0    -2.1 (-2.3)
09:30     UK     Claimant count (December)    -4100    -    -1,200
09:30     UK     Claimant count rate (December)    4.5%    -    4.5%
09:30     UK     Average earnings (3 months to November) Y/Y    2.1%    2.2%    2.1 (2.2)%
09:30     UK     Average earnings ex bonuses (3 months to November) Y/Y    2.3%    -    2.3%
09:30     UK     ILO Jobless rate (November)    7.9%    7.9%    7.9%

The dollar fell to an eight-week low against the euro on speculation a sluggish recovery in U.S. housing and labor markets will deter the Federal Reserve from raising interest rates.
The U.S. currency dropped to the lowest in two weeks versus the yen before reports today and tomorrow forecast to show housing starts fell and continuing jobless claims increased. It also fell after data yesterday revealed China’s overall holdings of U.S. government debt declined in November.
“The dollar is broadly under pressure from expectations that housing and employment are likely to remain weak, and from the data yesterday, which showed a decline in China’s holdings of U.S. assets,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London.
The euro rose after the region’s finance ministers made a commitment to increase the size of a bailout fund to tackle the debt crisis.
The euro has risen 5% against the dollar since ECB President Jean-Claude Trichet warned on Jan. 13 that the central bank will act if needed to contain inflation risks, which he said “could move to the upside.”
Inflation accelerated to 2.2% last month, breaching the ECB’s 2% limit for the first time in more than two years. Trichet said last week it may quicken further before moderating toward the end of the year.
ECB Council member Ewald Nowotny said yesterday the central bank sees the present interest rates as “adequate” and it doesn’t “see a need for an interest rate change in the foreseeable future.” Nowotny joins Athanasios Orphanides of Cyprus in suggesting markets may have over-reacted to the comments.
Gains in the euro were tempered on speculation European policy makers will delay efforts to provide more funds for debt- strapped countries.

EUR/USD rose from $1.3360 to $1.3508, but failed to set above the figure. Rate retreated to $1.3430. Currently euro recoveres, holding around $1.3485.

GBP/USD tested highs near $1.6030, but weak employment data from UK dragged the rate down to $1.5940. Later pound rebounded to $1.6009.

USD/JPY printed session lows around Y82.00, where bids were noted that helped the rate to go back to Y82.19.

US data starts at 1330GMT, housing starts and building permits data are due, where the seasonally adjusted pace of housing starts is forecast to fall slightly to 550,000 in December. Builders remain cautious, as suggested by the December NAHB index, which held steady at a very low level. The weekly Redbook Average then follows, at 1355GMT.

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