The U.S. Dollar dropped on Friday as risk appetite gripped market sentiment. This occurred after the release of reports which indicated that the European Central Bank may join forces with the International Monetary Fund in order to bail out member nations in financial trouble. The greenback managed to erase some of its earlier losses as U.S. treasury yields increased due to higher demand for risk assets. The U.S. Dollar remained weak but is expected to recover as the crisis in the Euro region continues with no definite end in sight. Though the E.U. has been at the center of attention, it looks like all eyes will be on the deficit reduction super-committee this week, which according to economists is likely to be headed for a stalemate. If the committee fails to reach an agreement, it’s highly likely that the credit ratings agencies will announce possible changes. Furthermore, without an agreement, analysts believe investors will seek refuge in currencies like the Franc and the Yen. In the meantime, the Canadian Dollar rose on Friday for the first time in a week after government releases revealed that consumer prices climbed in October, and leading indicators went up due to gains in the housing sector as well as the money supply.
The Euro strengthened on reports that the ECB is willing to work with the IMF to bail out even the largest of the Euro zone’s economies. The shared currency rallied further as German Chancellor, Angela Merkel, stated that there were “technical details to work out” to strengthen the bailout fund. The Pound Sterling advanced against the U.S. Dollar, but its climb was dampened by speculation that the Bank of England may implement further stimulus by February. According to analysts, this weighed on the Pound, though an increase in risk appetite helped it offset an earlier drop.
Japan’s Yen dipped against risk currencies and finished flat versus the greenback. News that the ECB may work in conjunction with the IMF in order to boost its strength caused the Yen to slump against the Euro and the Pound Sterling. Reports that major companies like Nissan and Panasonic may move their production plants overseas caused the Japanese monetary unit to erase some of the earlier losses.
Lastly, New Zealand’s Dollar dropped against the Euro amid talks that the ECB may begin lending money to the International Monetary Fund to cover the bailouts.
EUR/USD- ECB In Talks With IMF
The Euro sustained gains for the first time in one week after the Dow Jones News wire issued a report indicating that officials will initiate talks with the International Monetary Fund in order to establish a mechanism for the European Central Bank to issue loans needed to cover bailouts. The final decision will be announced on December 9th at the European Union Summit. The 17-nation currency weakened the most against the Yen since September, after European borrowing costs reached record highs, thereby diminishing confidence that the region will be able to contain the debt crisis. In Greece, parliament agreed on the 2012 budget, making the debt “sustainable.” Other news indicated that Spain’s opposition party won the majority in Parliament –a fact that spurred optimism and the belief that the new government will be able to cut spending. On the economic front, Germany’s PPI increased by 0.2 percent and Italy’s Industrial Production Orders dropped more than anticipated.
GBP/USD- BOE May Continue Asset Purchasing
Speculations that the Bank of England may continue with further asset purchasing weighed on the British Pound. According to one bank official, Martin Weale, there’s “a strong case” for implementing more measures to boost the economy, especially if the situation evolves to the recent forecasts. The Sterling recouped earlier losses on increased demand for risk assets, and continued to rally as investors felt confident on news that the ECB will work with the IMF to strengthen the bailout fund.
USD/JPY- Japan Set To Intervene In The Market
The Yen dipped against the Euro and the Pound on news that the ECB held talks with the IMF to find a way to boost its strength; however, it slumped versus the U.S. Dollar as the hike in U.S. yields sparked further demand for risk assets. In the meantime, there were rumors that there would be another intervention in the realm of 38 trillion Yen. But according to analysts, given the fact that the G7 is still trying to persuade China to ease up on its currency, it remains likely that Japan may intervene in the currency market, though in an inconspicuous way.
USD/CAD- Loonie Rallies On Inflation
Canada’s Dollar rallied as October’s consumer price reports revealed a 0.2 percent increase for the month. The currency traded higher on better sentiment out of the E.U. Furthermore, other economic reports showed that Consumer Price Index rose 2.9 percent from the previous year; Canada’s index of leading indicators climbed 0.2 percent due to advances in housing and money supply. Lastly, the Canadian Conference Board’s gage on the outlook for the next three months showed a 0.9 percent increase.
Today’s economic calendar shows that the Euro zone will report on the Current Account. Canada will release Wholesale Sales data. The U.S. will announce Existing Homes Sales and New Zealand will issue Inflation Expectations.