The safe-haven U.S. dollar and the Japanese yen slumped overnight against the majority of its rivals before Germany’s chancellor meets with the International Monetary Fund’s managing director amid signs European leaders are taking steps to stem the debt crisis. The greenback fell the most against the Aussie and New Zealand dollars as European and Asian equities both rallied over 1.0%, decreasing demand for the relative safety of the U.S. dollar. The Swiss franc held its gains from yesterday following the resignation of the Swiss National Bank’s Chairman Philipp Hildebrand. The central bank imposed a ceiling on the franc in September, saying it wouldn’t allow the currency to strengthen beyond 1.20 per euro. The Swiss has strengthened on speculation traders will now challenge the central bank’s effort to limit the currency’s strength. Meanwhile, the economic docket in the United States remains light today with only the NFIB Small Business Optimism survey released. Confidence among small business in the U.S. rose in December for a fourth straight month as companies foresaw improving sales, profits and economic outlook, the survey showed.
The Euro gained on increased risk appetite and as German Chancellor Angela Merkel is set to meet with IMF Managing Director Christine Lagarde today in Berlin. Merkel said the focus of the talks would be Greece and that “we want Greece to stay in the Euro.” The common currency strengthened modestly yesterday as Merkel and Sarkozy discussed a rulebook for closer fiscal union within the euro area. The region’s leaders may complete the guidelines by Jan 30, on month ahead of schedule. Later this week, Spain and Italy are set to sell as much as 5 billion and 12 billion euros, respectively, at bond auctions on January 12th. On the same day, the European Central Bank is expected to hold its benchmark interest rate at 1.0%, after cutting rates by 25 basis points the meeting prior.
The British pound held a flat range against the U.S. dollar, but weakened against the euro for a second day on optimism political leaders are taking steps to halt the spread of Europe’s debt crisis. Meanwhile, the British Chambers of Commerce said its forecasts policy makers will increase their target for bond purchases by 50 billion pounds to 325 billion pounds in the first quarter. However, the Commerce said that more BoE stimulus may not be enough to revive the U.K. economy. At the same time, Fitch Ratings announced it will conduct a review of the U.K. credit grade in the first half of the year as part of its normal oversight process. Fitch has “no plans at this point in time to change the rating.”
