Euro Weakens After Rise In Unemployment

The dollar rose on Tuesday after safe-haven flows increased following the publication of a report on the fiscal cliff which showed that the U.S might run out of money by February. Data from the Euro-zone showed a rise in the level of unemployment also weighed on sentiment. A report from the Bi-Partisan Policy Centre showed that the U.S would be unable to pay its bills by as early as February 15, and estimated that a raise of 1.1tr in the debt ceiling would be required to cover spending for 2013. Despite the recent tax deal, more deals on spending cuts and raising the debt ceiling would be required to avert a disaster.

On the data front NFIB Small Business Optimism rose to 88.00 from 87.5 and IBD/TIPP Economic Optimism in January rose to 46.5 from 45.1 although this was less than the 47.3 expected.

EUR
The euro fell on Tuesday after data painted a depressing picture of the recovery in the euro-zone after it showed the Euro-zone Unemployment Rate rising a basis point to 11.8%, which translated into an extra 113k unemployed people from the previous month. Retail Sales rebounded, but not as much as expected, reaching 0.1% when a rise of 0.3% had been forecast, from a previous result of -0.7%.

Other data showed German Factory Orders failed to meet expectations on both y/y and m/m basis, with the former at -1.0%, from -2.5% previously and the latter falling by -1.8% from 3.8% previously. One bright spot was Euro-zone Economic Confidence which showed a rise overall in December
to 87.0 from 85.7 previously and 86.3 expected.

GBP
The pound fell on Tuesday after negative data from the euro-zone and renewed fiscal cliff fears in the U.S sent risky currencies south. Data from the British Retail Consortium showed a fall in Sales to 0.3% from 0.4% previously when a rise to 0.5% had actually been expected. These also weighed on risk appetite and pushed the pound lower. The shocking fall in Services PMI last week began the pounds recent demise, after showing the U.K's leading secor fell into contraction territory from growth. On Tuesday it was the gloom cast by the euro-zone Unemployment Rate which weighed most, after it rose to 11.8% from 11.7% previously, in line with expectations.

A report from the Bi-partisan Policy Centre which indicated that the U.S would be unable to pay its bills by as soon as February 15 also weighed on global risk appetite and helped push down sterling.

JPY
The yen rose strongly on Tuesday after safety flows increased following depressing news from both the U.S and Europe. There was also speculation that all the monetary easing concerns associated with the election of the new pro-easing government may have been priced in and the yen would not fall further until the actual measures are introduced, which could be months away.

In the U.S a report by a bi-partisan policy unit highlighted the danger of an approaching fiscal cliff in February at current rates of expenditure; further cuts or raising the debt limit would be required to avoid a default, both of which would require bi-partisan agreement. In Europe data showed a rise in Unemployment and generally lower-than-expected data across the board, which also pushed down risk appetite.