Euro Up On Follow-Through Buying

The dollar fell on Friday after global risk appetite remained strong following an improved outlook for the euro zone, and after data showed a fall in the Trade Balance to -48.7bn from -42.1bn previously when a rise had been expected. Other data showed the Import Price Index rise to -0.1% from -0.8% whilst y/y it remained unchanged. Minneapolis Fed's Narayana Kocherlakota said he thought Fed was not being aggressive enough with its monetary policy because inflation and growth would remain low for next two years and this would continue to hamper full employment. Fed could control price growth from paying interest on money parked with it by banks and using that as a control mechanism. His overall doveish tone would not have helped support the dollar either.

EUR
The euro rose on Friday extending its rally even higher. Follow-through buying caused by the ECB standing pat at its rate meeting on the previous day and a massive fall in peripheral bond yields helped fuel the continuation higher. The ECB voted unanimously to keep rates unchanged and the President Mario Monti gave no hint of a rise being planned in Q1 in the press conference afterwards, as many had expected. Instead he talked up growth indicating that the structural adjustments made by member states and liquidity operations undertaken by the ECB had completed the groundwork for a stronger recovery in 2013.

GBP
The pound traded mixed-to-lower on Friday after poor data reinforced an increasingly negative outlook for the U.K economy. Industrial Production y/y in November failed to recover as quickly as had been expected and still showed a negative -2.4% print from -3.0% previously and -1.8% expected. Month-on-month it rose by 0.3% when 0.8% had been expected. Manufacturing Production fell even deeper into negative territory, falling to -2.1% from -2.0% previously, whilst m/m it fell by -0.3% when a 0.5% rise had been forecast. The downbeat results continued the trend of previous data which showed a widening trade deficit in November as well as subdued retail figures from the BRC.

JPY
The yen fell on Friday after trade figures showed an even deeper deficit than previously expected. The announcement of a 10tr yen stimulus package further weighed on the currency. The trade deficit in November deepened to -847.5bn when -842.6bn had been expected, from -450.3bn previously. Current Account fell less-than-expected to 222.4bn from 376.9bn previously, when it had been expected to fall into negative territory and give a print of -17.1bn. Other data showed that overall bank lending rose in December. Eco Watchers sentiment data in December showed a significant rise in both Outlook and Current survey components. The prime minister unveiled a 10.3tr yen stimulus fund to boost recovery and end deflation, with 3.8tr will going to disaster prevention and 3.1 to stimulating private investment.