Dollar hits fresh two month high against the euro

US Dollar:

Much of the dollar’s strength is still attributable to the intrinsic weakness of its primary counterpart – the euro. Yet, in this indirect appreciation we have seen the benchmark currency establish a strength that seems wholly independent of its derivative appreciation. So, from assessing the greenback’s fundamental bear¬ings, we should not have been exactly surprised to see EURUSD close below 1.30 for the first time since Sep¬tember 14th. Neither should GBPUSD’s test of 1.55 leave us stunned on the back of a three-week tumble. On the other hand, the performance that the dollar has leveraged against those currencies outside of the euro’s circle of influence holds significant weight as a meaningful fundamental development. First up, we have the dol¬lar’s dramatic, intraday recover against the Swiss franc, another safe haven currency. Then there is the rally against the currency that represents the United States’ largest trading partner, the Canadian dollar. Perhaps most remarkable though is the progress made against the ‘high yield’ currencies. Though risk appetite has yet to see a critical bearish break, AUDUSD fell for a fourth consecutive session to close below 0.96 and NZDUSD dropped a third day to intensify the focus on 0.74.
DATA : ISM Manufacturing PMI

Pound:

It was hard to assess the individual performance of the British pound. The currency’s performance was distorted by the remarkable volatility of the euro. That said, GBPUSD was relatively stable through the day de¬spite the movement for EURUSD. Although the pound was stable against the dollar it remains on a 11 week low after showed that UK house prices declined to a nine month low in November. In a report Nationwide chief economist said that much of the weakness in property values since the spring has been driven by a return of sellers to the market.
DATA : Manufacturing PMI and Nationwide HPI

Euro:

The euro has seen a direct link to the dollar with capital flowing from one to the other these past few weeks. However, Tuesday’s performance showed the selling pressure behind the shared currency hit another gear. The euro plunged against the Japanese yen, British pound and Swiss franc through the session to cover the fundamental and risk spectrum. This weakness is deeply rooted in the rapidly deteriorating financial condi¬tions in Europe. Notably, the S&P ratings agency downgraded Portugal’s credit outlook; but the more threaten¬ing developments are the record high yield spreads on Spanish 10-year bonds and the pain seen in credit de¬fault swaps for Italy. These are much larger economies. The euro was also near 11-week lows against the yen after falling 1.8 percent on Tuesday, and 10-week lows against sterling after premiums on Spanish and Italian bonds over German debt rose their highest in the euro's lifetime. Analysts said the market was looking for more pre-emptive action by policy-makers in the region after a rescue package for Ireland at the weekend, as pres¬sure in the euro zone bond market was widening to more countries including Belgium.
DATA : No major data to be released today

General:

Although the Australian Dollar has come off in Wednesday trade following the release of the weaker than expected GDP data, we do not feel the currency has come off nearly as much as it should in light of this development. Instead, the single currency is only mildly offered on a relative basis to this point, with the stronger China PMI data seen as the offsetting prop against any setbacks. Given the strong dependence of the Austra¬lian economy on China, any strength in Chinese economic data is perceived to be a net positive for Australia. However, ironically, the stronger China data may only serve to ultimately weigh on the Australian economy some more, with China in the process of aggressively looking to raise rates in an effort to curb inflation.

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