Euro continues to extend losses against majors

US Dollar:

Federal Reserve officials appear unlikely to stop their controversial strategy of buying vast sums of Treasury bonds before the program is scheduled to end in June , based on minutes of the central banks last policy meeting, released Tuesday. Fed officials view the economic outlook as slightly improved at their Dec 14 meeting. Also Tuesday, new economic data offered still more confirmation that the economic growth is strength¬ening. In Nov, factory orders rose 0.7%, better than expected and rebounding from a 0.7% October decline. This saw the greenback rally against both sterling and the euro, with a gain of 50 cents on cable and nearly a cent and a half on the single currency. Asian equity markets are in the red across the board, unimpressed by late-day rebound in US indices. Uncertainty ahead of the US jobs report on Friday is adding to jitters seen in commodity space as gold, oil and copper fell sharply in US hours. This all led to dollar strength across the board. Against the Aussie dollar, AUD/USD continued to underperform with a 0.5% slump against the green¬back to test parity—the lowest level in a week. USD/JPY remained supported above Y82 and traded sideways in Asia, as T-notes yields showed little reaction to Fed minutes.Data 13.15: ADP Nonfarm Employment Change 101k from 93k. 15.00: ISM Non-manufacturing PMI 55.6 from 55.0.

Pound:

Sterling had a wobble against the dollar yesterday as the buck rallied on good economic data and a slight run to safety in currency markets ahead of the key US jobs number due to be released Friday. We did see over half a cent lost to push GBP/USD down from $1.5644 to $1.5570. We have seen somewhat of a recovery this morning for the pound as we test the $1.56 handle. Against the euro we saw strong gains posted yesterday which have continued into Wednesdays trading session. The euro has come under more pressure regarding peripheral countries in the eurozone, as the Swiss and PIMCO refuse to buy Irish government bonds, putting even more pressure on the euro, and pushing GBP/EUR close to a 2% gain in 24 hrs. Data 09.30: PMI Construction 51.1 from 51.8

Euro:

A rally in the value of the dollar yesterday saw the euro slump with over a cent and a half lost against the greenback. We saw the dollar rally across the board on profit taking and a flight to safety ahead of Fridays US jobs numbers, which helped push EUR/USD down to $1.3350. This was before the damming story regarding the Swiss central bank refusing to touch Irish state bonds. Irish government bonds due to be repaid between 2011 and 2025 have been rejected as collateral by Switzerland’s central bank. Also, in a further blow, one of the worlds biggest bond investors, Pacific Investment Management Co (PIMCO), has stopped buying Irish govern¬ment bonds, as well as bonds issued by other peripheral eurozone economies. This all dragged the euro down, which saw heavy losses posted against the pound. EUR/GBP shed over 1.5% yesterday and has continued to slide this morning, now homing in on close to a 2% loss as EUR/GBP trades at 0.8487. Data 10.00: PPI m/m.

General:

• Experts have warned that a high oil price could derail the global economic recovery, as the number of market specula¬tors betting on rising crude jumped to a four-year high. Despite a 1.4% drop in oil price yesterday to $93.53, econo¬mists are cautioning that oil above $100.00 could put the brakes on the worlds emergence from recession.

• It seems its not only the cricket team in Australia posting heavy losses overnight. The Aussie dollar has also taken a pummelling with the National Australia Bank expecting Queensland floods to erase 0.1% off Q4 GDP, expected is 0.5%. The Aussie dollar has continued to trade lower against the majors, with a 3% loss against the pound since the floods hit early this week.

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