The U.S. Dollar weakened on the last day of the year even through economic data releases were better than anticipated. Investors sought high-risk assets while they shied away from the Euro’s turmoil. Risk appetite returned to the markets after Spain announced its budget deficit would be larger than the previous government estimated, but reiterated it would implement new austerity measures. Economic reports out of China indicating a small increase in HSBC Manufacturing had no effect on the currencies. The Canadian Dollar averaged above par against the U.S. currency for the first time in 30 years as investors opted for assets from “highly rated countries.” The Loonie closed the year by trading high against the Euro as a result of the region’s lack of stability.
And as the new year began, E.U. leaders agreed to get back to work in order to buy time for Spain and Italy who are currently grappling with their large debts. German Chancellor, Angela Merkel, and French President, Nicolas Sarkozy, will discuss the details of a new rulebook on handling debt when they meet on January 9th. E.U. leaders are hoping to prevent the 17-nation currency from fragmenting as the sovereign debt crisis enters 2012. And despite the sporadic appetite for refuge, the British Pound is forecast to trade in tandem with the shared currency while the Euro region’s policy makers try to convince the world that the Euro will not collapse. The Swiss Franc advanced against most of its counterparts as the European debt crisis fueled demand for safe havens.
In closing the doors to 2011, reports showed that the Japanese currency’s average value was the highest on record against the U.S. Dollar despite the three interventions aimed at weakening the Yen. Japan’s monetary unit is expected to strengthen as the Euro region crisis worsens, and as investors seek refuge.
Lastly, the Australian and New Zealand Dollars advanced versus the majority of their peers after world equities increased, suggesting that demand for high-yield assets has risen. The South Pacific currencies strengthened in anticipation of this week’s U.S. manufacturing reports, which are anticipated to confirm economic growth in the U.S.
EUR/USD- E.U. Leaders Try To Buy Time
E.U. leaders are returning from end of year holidays and plan to get to work in order to buy time to prevent the Euro currency from collapsing. In the initial three months of the year, approximately 157 billion Euros of debt are scheduled to mature. Policy makers are therefore pledging to have a new “rule book” worked out by then, in order to handle government spending. According to Angela Merkel’s speech of December 31st, the Euro region will “emerge stronger.” The Euro traded at a 10-year low versus the Yen and wilted against the U.S. Dollar on the last day of 2011 despite news that Spain plans to cut 8.9 billion Euros in spending.
GBP/USD- Sterling Recovers At Close Of 2011
The British Pound gained on the last day of the year as investors bought into risk. The Sterling had declined as debt woes out of the Euro region continued to affect risk currencies, and as economists predicted a slowdown of the country’s growth. On the data front, Nationwide Home Prices slipped by -0.2 percent MoM and Bank of England Equity Withdrawals dropped once more to -8.6 bn rather than the -7.3 expected.
USD/JPY- Yen Weakens Versus Greenback
The Yen dropped versus the U.S. currency as risk aversion dwindled away in the final hours of the last trading day of 2011. According to analysts, investors speculate that Japan will not intervene again especially after receiving criticism from the Federal Reserve for prior interventions. And while lackluster data issued at the start of last week weighed on the Yen, it recouped, suggesting that risk trends are the driving forces in today’s market.
AUD/USD- Aussie Gains Versus Majors
The Australian Dollar rose against the greenback and 15 other majors as Asian and global stocks increased. However, its gains were capped by concerns that the Euro region’s crisis has spread as suggested by the poor outcome of Italy’s bond auction.
Today’s economic calendar reveals that most markets will remain closed. The E.U. will report on French and German Manufacturing PMI as well as the region’s overall PMI.