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28.11.2011 08:20

Forex: Weekly’s review

On Monday the euro rose against the U.S. dollar against the backdrop of media reports that a special committee ("supercommittee") of the U.S. Congress, designed to reduce the budget deficit will soon announce the failure to reach a compromise solution. Before November 23 "supercommittee" must submit a plan to reduce the budget deficit ($ 1.2 trillion. For 10 years), however, to the present moment, the consensus between Republicans and Democrats on the structure of public spending cuts was not found until. Despite the fact that the costs would be cut in any case (after the "dip" in the negotiations the country will face automatic "sequestering" the budget for the same amount), the inability of the major parties to take a decision on the consolidated fiscal policy could provoke a new round of concerns about reducing the country's sovereign rating international agencies (Fitch and Moody's).

On Tuesday the euro gained versus the yen as appetite for safety declined amid speculation officials were tackling Europe’s sovereign-debt crisis. The 17-nation currency rose against the dollar after the International Monetary Fund revamped its credit-line program to help countries facing outside shocks. It fluctuated earlier as the U.S. economy grew less than estimated and ratings companies affirmed U.S. credit grades. The dollar remained lower after the Federal Reserve released minutes of its last meeting. Canada’s dollar climbed on a rise in oil, the nation’s biggest export.

On Wednesday the euro fell to a six-week low against the dollar after Germany received insufficient bids at a debt auction, adding to concern Europe’s sovereign-debt crisis is driving away investors from the region’s assets. Germany missed its 6 billion-euro ($8 billion) maximum sales target at a 10-year bond auction today by 35 percent, prompting investors to question the status of the securities as a haven from the region’s debt crisis. The bunds drew a yield of 1.98 percent. A composite index based on a survey of purchasing managers in European manufacturing and services rose to 47.2 from 46.5 in October, Markit Economics said in an initial estimate, suggesting the sovereign-debt crisis is starting to affect economic growth in the region’s core nations. The dollar rose versus all of its 16 most-traded peers as a gauge of European services and manufacturing output shrank and data signaled China’s manufacturing will tumble. The HSBC Flash Manufacturing PMI for China, Australia’s biggest trading partner, fell to 48 this month, predicting the biggest contraction since March 2009. That compares with a final reading of 51 in October.

On Thursday the euro strengthened from a seven-week low against the dollar as German reports showed business confidence improved and economic growth accelerated even with Europe’s worsening debt crisis. The Munich-based Ifo institute said its business climate index increased to 106.6 this month from 106.4 in October. The euro  also advanced versus the pound amid signs Germany is softening its opposition to allowing issuance of common euro-area bonds. Yesterday Germany received insufficient bids at a bond auction, fueling concern that Europe’s sovereign-debt crisis is driving away investors from the region’s assets. German newspaper editorials and opposition politicians stepped up bids for Chancellor Angela Merkel to shift from an incremental approach after the government sold 35 percent less bonds than its maximum target at yesterday’s auction. Bild newspaper reported Merkel’s coalition is concerned it may have to agree to euro bonds under certain conditions. But euro fell later. At second half of yesterday Fitch lowers Portugal's growth fcst due European outlook. Sees Portugal 2012 GDP falling 3%. Cites Portugal high debt,large fiscal imbalances. Portugal could be further downgraded if growth disappoints..

On Friday the euro declined as French consumer confidence dropped to the least since 2009 and Italian borrowing costs increased at a sale of six-month bills. The dollar rose versus all its major peers as stock losses spurred demand for safer assets. Italy sold 8 billion euros ($10.6 billion) of 183-day bills at a rate of 6.504 percent, the highest since August 1997, and up from 3.535 percent at the prior auction on Oct. 26. Demand dropped to 1.47 times the amount on offer from 1.57 times last month. The dollar was boosted this week as Germany failed to sell its maximum amount at a bund auction and German Chancellor Angela Merkel ruled out the issuance of joint euro-area bonds.

The pound dropped for a fifth day versus the dollar as an industry group reduced its outlook for U.K. house prices.

Market Focus

  • The Bank of Japan decided by a 7-2 majority vote to hold the interest rate at -0.10%
  • Earnings Season in U.S.: Major Reports of the Week
  • U.S. commercial crude oil inventories decreased by 4.7 million barrels from the previous week
  • Australian unemployment rate stable at 5.6% in June
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