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US$ Trades In Tight Ranges on Minimal Risk Events

The U.S. dollar traded in a quiet range overnight, largely holding on to its gains from last week, as global equities ebbed and flowed between gains and losses.  The greenback gained against the Australian dollar after a report from the statistics bureau showed retail sales were unchanged in November.  Economists surveyed by Bloomberg had predicted a gain of 0.4%.  In the United States, there is no economic data slated for release today or tomorrow and only the Fed’s Beige Book on Wednesday.  Weekly jobless claims and retail sales will likely affect markets on Thursday.  International trade, import and export prices and consumer sentiment will round out the relatively light economic docket on Friday morning.  With a lack of risk events in the United States this week, look for news surrounding the European debt crisis and the results of European bond auctions to drive the overall risk sentiment and thus the direction of the greenback.

The Euro held near its lowest level in 15 months against the U.S. dollar even as leaders of Germany and France met to craft a plan for rescuing the 17-nation common currency. German Chancellor Angela Merkel and French President Nicolas Sarkozy held talks in Berlin today to flesh out a new rulebook for fiscal discipline negotiated at a December 9^th summit that seeks to create a “fiscal compact” for the euro area.  Merkel said that euro-area leaders will discuss making the European bailout fund “more efficient” and that Germany and France “are ready to examine” how to speed up capital payments into the European Stability Mechanism bailout fund.  Meanwhile, the economic docket showed that industrial production in Germany, Europe’s biggest economy, declined in November.  Later this week, both Spain and Italy will hold bond auctions.  The spread on Italian 10-year bonds remains above 7.0%, a threshold that led Greece, Portugal and Ireland to seek bailouts.

The British pound slipped modestly against the U.S. dollar and dropped against the Euro, snapping a three-day gain, after an industry report showed Briton’s concern about losing their jobs increased to a record last month.  The Lloyds Bank Corporate Markets index of job security fell to the lowest in December since the measure began in 2004.  Nevertheless, the sterling remains near 16-month highs against the common currency.  Later this week, the Bank of England is widely expected to keep interest rates on hold at a record low 0.5% and is likely to leave its bond-purchase target unchanged. 

US$ Extends Gains as Unemployment Rate Falls

The U.S. dollar maintained its bullish momentum, continuing to trade at 15-month highs against the Euro ahead of this morning’s economic data that is expected to show employers in the U.S. added the most jobs in three months.  Despite an up tick in the price of crude oil, the greenback found support versus the Canadian dollar after a government report showed employers added fewer jobs in December than economists forecast and the unemployment rate rose for a third straight month.  In the U.S., Non-farm payrolls registered at 200K, versus an expectation of 155K.  In addition, the unemployment rate fell to 8.5% in December from a revised 8.7% the month prior.  The rate declined to almost a three-year low showing that the labor market gained momentum heading into 2012.  The U.S. dollar has gained following the positive data, even as U.S. equity futures have extended their gains.  Expect the U.S. dollar to trade in choppy ranges today as the currency attempts to break through major resistance levels against its counterparts. 

The Euro retreated versus the U.S. dollar, pushing to its lowest level in over a year following the release of poor economic data for the 17-nation region.  The European Commission reported its index of executive and consumer sentiment in the euro area declined to 93.3 in December from a revised 93.8 in the previous month.  The unemployment rate for the Euro zone held at 10.3% in November, a separate report showed.  Meanwhile, German factory orders, adjusted for seasonal swings and inflation, slipped 4.8% in November from the prior month, when they increased by 5.0%.  The print marked the biggest drop since January 2009.  Next week, German Chancellor Angela Merkel will meet French President Nicolas Sarkozy in Berlin to talk about increasing fiscal coordination among euro-area states before the European Union leaders’ summit at the end of the month.

The Japanese yen remained in a tight range against the U.S. dollar but traded close to its highest level in 11 year versus the Euro.  Japanese Finance Minister Jun Azumi said today he understands the weakening of the euro against the yen will have a significant impact on the companies that export their goods to the region.  Japan sold the yen three times last year as its strength derailed an export-led recovery. 

The British pound slumped against the U.S. dollar but continued its favorable ranges against the Euro.  The sterling fell after a report from Halifax said Britain’s property market faces an “uncertain” year after a weakening economic recovery dragged house prices to their lowest level in 2 ½ years.  Values dropped 0.9% to an average 160,063 pounds last month, the cheapest since July 2009.  Values have fallen 2.2% from a year ago. 

US$ Trades to 15-Month Highs Versus Euro

The U.S. dollar rallied across the board overnight, pushing to a fresh 15-month high against the Euro, as French borrowing cost rose at a bond sale today.  The greenback also surged against the Australian and New Zealand dollars as global equities sold off.  Indeed, the Stoxx Europe 600 Index of shares fell 1.0%, while the MSCI Asia Pacific Index lost nearly 1.0%.  The greenback found added support against the Aussie after a report showed the nation’s trade surplus unexpectedly narrowed in November as shipments abroad of resources slowed.  The U.S. dollar also rebounded from modest losses from earlier this week against the Japanese yen, but the pair remains in overall tight ranges.  Meanwhile, the U.S. economic docket painted a rosier picture of the American labor market.  Companies added more workers than forecast in December, according to a private report based on payrolls.  The 325K increase exceeded the highest projection in a Bloomberg News survey and followed a revision of a 204K gain in the prior month, ADP Employment Services reported today.  The number may foreshadow a better than expected Non-farm payroll number on Friday.  In addition, fewer Americans filed claims for unemployment benefits last week.  Applications for jobless insurance decreased 15K, Labor Department figures showed today.  Despite the positive data, U.S. equity futures foreshadow a lower open for American shares, boosting demand for the greenback as a safe-haven.

The Euro fell to its lowest level in over a year against the U.S. dollar after the first French bond auction of the year failed to impress as credit-rating companies threaten to cut the nations top AAA ranking.  Fitch Ratings lowered the nation’s credit outlook in December on the “heightened risk of contingent liabilities” from the escalating euro-region crisis.  In addition, Standard & Poor’s is reviewing the top ratings of both France and Germany.  The Euro also weakened after Greek Prime Minister Lucas Padademos said his country may face economic collapse as soon as March.  Papademos said deeper cuts in incomes are the only way Greece can remain in the euro area and receive more financing from international creditors. At the same time, Italy’s Prime Minister Mario Monti said today that the size of the European Financial Stability Facility bailout fund “remains insufficient.”

The British pound slipped versus the U.S. dollar as global equities ticked lower.  However, the currency jumped to a 15-month high against the Euro as debt-crisis concern deepened.  The British pound has risen 3.0% against a basket of nine-developed market peers in the past six months, making it the third best performer after the Japanese yen and the U.S. dollar.  The economic docket showed that U.K. service activity based on a survey of purchasing managers rose to 54 from 52.1 in November, Markit Economics said today in London. 

US$ Rallies; Erases Yesterday's Loses

The U.S. dollar rallied overnight, erasing losses from its first day of trading in 2012 as European equities retreated and U.S. stock futures show American shares will likely trim yesterday’s gains at the open. The U.S. dollar also found relief against the commodity-based currencies, such as the Canadian dollar, as the price of oil pared its rally from yesterday.  The price of oil had risen as Iran partook in a 10-day military exercise near the Strait of Hormuz at the mouth of the Persian Gulf.  Demand for the dollar was tempered however before this morning’s economic releases that are expected to show that factory orders increased and the service industry expanded, damping demand for safer assets.  Bookings for U.S. factory goods are expected to climb 2.0% in November after dropping 0.4 the previous month.  The service industry is expected to show the fastest pace of growth in three months. 

The Euro pulled back from a one-week high after a European report showed inflation slowed, backing the case for the region’s central bank to cut interest rates further in the new year.  European inflation slowed to 2.8% for December from a three-year high of 3.0% the prior month, the European Union statistics office said.  The print maybe give the European Central Bank the scope to cut interest rates by as much as 50 basis points, to 0.50% by the second quarter.  A separate report showed that the euro-area composite index based on survey of purchasing managers in services and manufacturing stayed below the 50 level that indicates contraction for a fourth month.  The Euro also came under pressure after El Pais newspaper reported the Spanish government helped the Valencia region make an overdue payment to Deutsche Bank AG.  The newspaper cited sources at the national economy ministry and the regional economy department. 

The British pound fell against the U.S. dollar overnight as general risk aversion weakened demand for the currency.  Meanwhile, the economic docket in the U.K. remained light.  A report from Markit Economics showed that construction activity increased to 53.2, beating expectations for a print of 51.5.  In addition, mortgage approvals rose to 52,900 in November from 52,700 in the month prior.  The economic data has had little effect on the direction of the sterling.

US$ Opens the New Year Lower Across the Board

The U.S. dollar opened the year lower versus the majority of its rivals as global risk appetite increased on the back of strong manufacturing data in China and India.  China’s purchasing managers’ index for manufacturing increased to 50.3 last month from 49 in November.  At the same time, India’s PMI for manufacturing rose to the highest in six months, HSBC Holdings Plc reported yesterday.  The data has caused global stocks to rally, boosting higher-yielding currencies such as the Australian and New Zealand dollars.  Later this morning, the U.S. Institute of Supply Management is expected to report its factory index rose to 53.4 in December from 52.7 in the previous month.  Tomorrow a separate report is expected to show bookings for factory goods climbed 2.0% in November after a 0.4% drop in the previous month.  Weekly jobless claims and the ISM non-manufacturing composite will be released Thursday morning, followed by Non-farm payrolls and the unemployment rate on Friday.

The Euro gained to its strongest level in a week against the U.S. dollar as strong global data increased demand for the common currency.  The euro extended gains after the Nuremberg-based Federal Labor Agency said German unemployment fell in December more than economists forecast. Traders will now shift their focus to European services and manufacturing data expected to be released tomorrow that will show output shrank for the fourth month in December.  Despite the small rally in the Euro, the common currency was the worst performing currency in 2011 according to the Bloomberg Correlation-Weighted Indexes, which tracks 10-developed-nation currencies.  The euro slid 2.0%, while the U.S. dollar gained 1.1%.

The Japanese yen strengthened against the U.S. dollar, but remained in familiar ranges from the past two months.  Japan refrained from selling yen in the foreign-exchange market this month, the Ministry of Finance said on its website today.  In the month through November 28^th, Japan sold 9.09 trillion yen, the biggest intervention on a monthly basis in data going back to 1991. 

The British pound also rallied against the U.S. dollar as the U.K. economic docket joined other nations in reporting strong manufacturing data, boosting the domestic currency.  U.K. manufacturing shrank less than economists forecast in December as demand increased in Germany and China.  A gauge of factory output based on a survey by Markit Economics rose to 49.6 from a revised 47.7 in November.  The median forecast was for a drop to 47.3.  Nevertheless, a reading below 50 indicates contraction.  The reading offers a glimmer of hope for the manufacturing industry in the U.K.  The sovereign debt turmoil in Europe, the U.K.’s biggest export market, had dimmed the outlook for manufacturers.