Euro continues decline as it breaks through $1.33 against the dollar

US Dollar:

Macro worries hung on the markets between European bailout concerns and escalating tensions between North and South Korea with the dollar a renewed safe haven. North Korea is considering declaring war due to the planned South Korea and US military drills scheduled for Nov 28th. We have seen Asian markets drop as trades headed for the safety of the dollar. Against sterling the greenback managed to squeeze just under the $1.57 handle, against the euro we saw the $1.33 level breached and against the yen, USD/JPY hit 83.94 (highs not seen since early Oct). Focusing in on EUR/USD, this does have more scope to trade in the dollars favour. Con¬tagion with other European countries with regards to how they are going to finance their massive debt levels is worrying markets, keeping the euro under pressure. No major data. Half day in US due to Thanksgiving.

Pound:

Sterling held firm against the euro yesterday and although we did dip against the single currency over-night, this morning has seen selling pressure continue for the under-fire single unit. Worries of contagion spreading into other debt ridden eurozone countries is still a real possibility, with stories breaking now about core states of the eurozone. We also had better than expected high street sales numbers out of the UK yester-day which also underpinned the pound against its European counterpart. High street sales were higher in No-vember compared to the same month in 2009, according to the Confederation of British Industry’s (CBI) Dis-tributive Trades Survey. Wit5h 13% suggesting trading levels dropped during the two weeks, the +43% balance is better year-on-year and an improvement on October’s figure of +36%. High Street sales growth held up well in November, and retailers are hopeful that the run=up to Christmas will be just as strong. Having said that, con¬fidence remains fragile, VAT is rising in January and a combination of weak wage growth and high inflation is eating into household incomes. When we look at how the pound has been performing against the dollar, the main issue is the ongoing trouble brewing ion the Korean peninsula, where the threat of more attacks from North Korea is destabilising global markets, bringing a wave of safe haven buying, which in turn is rallying the greenback. Cable has fallen under the $1.57 level already this morning, but has seen a slight bounce since the start of the UK trading session. No data.

Euro:

The euro looks like it cant wait for the week to end as another day saw more losses posted against the majors. It seems the single unit is getting it from all sides at present, and the two Korea’s are not helping its cause as safe haven positioning has also hurt the value of the euro. The escalating debt crises on the eurozone periphery is starting to contaminate the creditworthiness of Germany and the core states of monetary union.
Credit default swaps (CDS) measuring risk on German, French and Dutch bonds have surged over recent days, rising significantly above the levels of non-EMU states in Scandinavia. While Germany’s public and private debt is not extreme, it is very high for a country on the cusp of an acute aging crises. Adjusted for demographics, Germany is already one of the most indebted nations in the world. Germany's finance ministry believes that if Portugal were to use the fund, it would be good for Spain due to its exposure to Portugal, Euro remained rela¬tively unchanged in the session despite the report. No major data.

General:

• The FTSE is called to open lower this morning with trading set to remain muted given that the US markets only return for half a day after the Thanksgiving holiday.

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