Daily Report: EUR/USD, GBP/USD, USD/JPY And USD/CAD : January 04, 2013

The U.S. Dollar rallied to its highest level in three weeks against the Euro as doubt that U.S. lawmakers will reach an agreement regarding the country’s debt ceiling spread throughout the markets. Investors appeared unconvinced that the fiscal cliff deal was robust enough to remove the risks which could push the U.S. into a recession. The greenback continued to rally against the majority of its peers as the Federal Reserve released the minutes from the recent policy meeting. The minutes showed that policymakers were divided over the decision to increase quantitative easing until the middle of 2013. On the data front, the ADP Research Institute showed that U.S. companies hired 215,000 more workers last month, which was up from a revised increase of 148,000 in November. Other U.S. Department of Labor news confirmed that the number of people filing for Initial Unemployment Benefits climbed by 10,000 to a seasonally adjusted 372,000 during the final week of December while Jobless Claims for the previous week were revised up to 362,000 after they posted at 350,000. The Canadian Dollar reached an almost two-week high versus its American counterpart after a private release indicated that U.S. employment increased more than predicted, fueling optimism the nation’s economy may be gaining momentum. The Loonie erased some of its previous gains after the Federal Reserve issued its minutes which indicated that policymakers may put an end to the bond-purchasing program in the coming months.

The Euro plunged against the U.S. Dollar as investors grew concerned about the next negotiations in Washington, which will address the debt ceiling. Market investors are concerned that lawmakers may not find a way to agree on raising the 16.4 trillion Dollars debt limit. The Euro remained under pressure as data showed that Unemployment in the region’s biggest economy rose, though less than forecast. The Euro advanced versus the Yen and the British Pound. The British Pound responded to market sentiment and declined versus the U.S. Dollar as U.S. fiscal concerns persisted. The Sterling was also weighed down by less than stellar Construction data out of the U.K.

The Yen pared gains against the U.S. currency after the minutes from the Federal Reserve’s most recent policy meeting indicated that policy makers mentioned they may end the $85 billion of monthly asset purchases sometime in the coming months. The Yen rebounded as risk appetite ebbed in the market on worries the U.S. Treasury will run out of the “extraordinary measures” it utilizes to fund the Federal government now that the nation has reached its $16.4 trillion debt ceiling.

Lastly, both the Australian and New Zealand Dollars declined after having traded close to a two-week high as investors speculated that U.S. lawmakers would have a tough time reaching a consensus on increasing the nation’s debt ceiling. The Australian currency fell against the majority of its peers after the world’s biggest economy focused on negotiations over raising the debt limit. According to the country’s Budget Office, the increase must take place by February of this year. The Kiwi declined further subsequent to a drop in U.S. stock futures.

EUR/USD- Euro Plunges Versus Greenback
The Euro declined dramatically against the greenback as the U.S. braced for another round of negotiations aimed at raising the debt limit. And while most markets are breathing a sigh of relief over the deal reached by the House and the Senate on the fiscal cliff, investors are concerned that the two sides will have a tougher time reaching a consensus. On the data front, Germany indicated that the Unemployment Rate stayed unchanged at 6.9 percent for November, although the number of people who lost their jobs rose by 3,000, which is lower than the forecast for an increase of 10,000.
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GBP/USD- Construction Disappoints
The British Pound declined against the U.S. Dollar on worries over the next round of talks aimed at increasing the debt limit, and as the U.K. posted disappointing Construction data. Echoing the market’s jitters, the International Monetary Fund stated that “more needs to be done” in terms of reducing the U.S. debt. In the U.K., the Chartered Institute of Purchasing & Supply indicated that the country’s Construction Manager’s Index dipped to a seasonally adjusted 48.7 last month after it posted at 49.3 in November, suggesting it has slowed down to a six-month low.
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USD/JPY- Greenback Gives Up A Few Gains
The U.S. Dollar gave up some of the previous day’s gains. However, the Yen hit a 29-month low against the greenback after minutes issued by the Federal Reserve indicated that policy makers may end the asset purchasing program sometime in 2013. Trading remained thin and there was low liquidity in the Yen as Japan and China’s markets remained closed for the holidays.
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USD/CAD- Loonie At Almost 2-Week High
Canada’s Dollar rallied close to a two-week high versus its American peer following the release of private reports which indicated that employment in the U.S. increased more than predicted. The Loonie remained strong after lawmakers in Washington announced a deal which calls for raising taxes on a small percentage of the American population, and reducing the deficit to avoid pushing the nation into a recession. The Loonie declined slightly on news that the Federal Reserve may conclude the asset purchasing program in the months to come. Data showed that Canada’s Unemployment may have increased last month; the actual figures will be released January 9th.
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Today’s Outlook
Today’s economic calendar shows that the Euro region will report on Services PMI and CPI. The U.K. will release data on Mortgage Lending, the BOE Consumer Credit and Services PMI. Canada will announce Changes in Employment and the Unemployment Rate. The U.S. will issue figures on Factory Orders, the Unemployment Rate, Average Hourly Earnings, Non-Farm Payrolls, Private Non-Farm Payrolls, and the ISM Non-Manufacturing Index.