Euro Rallies On Rise In Investor Confidence

The dollar fell Monday mainly because of a result of lessening safe-haven flows because of a rise in risk appetite due to Euro-zone date, which showed a leap in investor confidence in January. Another factor that weighed on the dollar was the news that the Basel Committee on Banking Supervision had watered down the Basel Asset Rule and agreed to delay its implementation. The main change was to the Liquidity Coverage Ratio, or LCR, which requires Banks to hold assets to cover all expected outgoings over the next 30-day period. The change means now they only have to cover 60%. Also the deadline for implementation was pushed back to 2019 from 2015 originally, all these changes improved the outlook for the banking sector and helped lift sentiment, limiting safety demand for the greenback.

EUR
The euro strengthened on Monday after data showed a jump in investor confidence after the Sentix survey gave a -7 reading up from -16.8 previously; whilst analyst's estimates had only been for a slight rise to -14.2. Lots of small improvements were stated as the reason for the rise in confidence, including the success of the Greek debt buy-back deal, the slight fall in Spanish unemployment and the small budget surplus recorded by Ireland. Other data showed that the Euro-zone Producer Price Index y/y (Nov.) showed a greater-than-expected fall to 2.1% from 2.6% previously when a drop to 2.4% had been expected. That, however, weighed on the single currency ahead of the ECB rate meeting this week as it increased growing speculation that the central bank might loosen its monetary policy further, either by a rate cut or asset purchases.

GBP
The pound traded mixed on Monday, rising against the dollar but falling to the euro and yen. Its strength against the greenback was put down to recent Fed minutes that indicated the central bank was considering winding up its asset purchase scheme. Overall the pound was weaker, however, as a result of the unexpected fall in Services PMI last week. On the data front Lloyd's Employment Confidence (Dec) remained at -42, the same as the previous month, New Car Registrations meanwhile fell to 3.7% from 11.3%. Halifax House Prices showed that the housing market was more buoyant than previously thought, with prices m/m in December rising by 1.3% from 1.6% previously compared to an expected 0.0% result. House Prices fell -0.3% from -1.3% previously (3mths/year) in December.

JPY
The yen strengthened overall on Monday as a result of widespread weakness among other major currencies, as well as a rise in safe-haven demand after the new LDP pro-easing government unveiled a massive fiscal stimulus program, which sparked concern that the country's already high debt might spiral out of control, leaving the country vulnerable to a financial crisis. On the data front Loans and Discounts Corp (Nov) y/y rose to 0.44% from 0.26% previously, Monetary Base, meanwhile rose to 11.8% from 5.0% and Vehicle Sales (Dec) y/y extended their decline by falling -3.4% from -3.3% previously.