EUR
The euro significantly grew against its major counterparts on the last session followed by an abrupt drop in the US treasury yields and messages that the European leaders agreed to discuss the creation of a permanent mechanism to shore up over-indebted countries on the upcoming meeting. Sovereign bond spreads for Ireland and Greece narrowed, as well as German bonds. Difference of views among the European leaders is currently a negative driver for the euro, and hopes that the upcoming meeting on Thursday will help to find consensus on the debt issue is considered a good support for the euro. Today’s news block contains data from Germany’s ZEW Institute and economic sentiment for December with growth from +1.8 to +4.0 and current assessment with +85.0 after the prior +81.5. Though forecast for business confidence in the Euro zone is not that optimistic - 10.3 against the previous 13.8. October industrial production index is very likely to show some positive dynamics - +1.3% m/m, +7.6% y/y against -0.9% m/m, +5.2% y/y earlier. Nevertheless, of most importance for the market and the euro seems to be the US FOMC decision.
GBP
The British sterling closed the first trading session of the week with a positive growth against the dollar. And though the pound had been under pressure at the beginning of the session, sentiment towards the currency has turned abruptly positive, providing a positive influence from British industrial prices – November input PPI turned out above the expected and grew 0.9% m/m, 9.0% y/y against the forecast of +0.8% m/m, +8.3% y/y. Such dynamics may prompt the BoE to toughen its policy. Some of today’s most significant data has been already released – Royal Institute of Chartered Surveyors (RICS) has confirmed a weakening demand in the UK housing market – November house prices dropped: -44 after -49 in October, though the forecast was even worse- -50. Consumer price index is scheduled for release – the index is likely to decrease, but only year over year – from +3.2% y/y to +3.1% y/y and remain at +0.3% m/m. Core CPI is likely to decrease too - +2.6% ?/? ? +2.7% ?/?. Retail price index is expected at the +0.2% m/m,+4.5% y/y.
JPY
The US bond yields dropped, when Fed bought $7.8 bn of treasuries, influencing the pair USD/JPY. As a result, the Japanese currency strengthened to the greenback, rebounding to support 83.00. Today’s data showed a decrease in October Industrial production -2.0% m/m after the prior -1.8% m/m, and +4.3% y/y against +4.5% y/y. October capacity utilization index left much to be desired too, slumping 2.3% m/m lower after -1.1% m/m a month before. As for the yen’s outlook, again, it all depends on the US bond yields. Further decline can initiate a sell-off. It’s worth noting, that the currency returned to the levels, which can trigger new interventions from the BoJ. We should keep these risks in mind.
