Market Overview - 21/12/2011 - Euro Weakens

Market Review - 21/12/2011          22:24 All times in GMT  

Euro weakens despite strong demand at ECB 3-year loan offer

The single currency weakened against the dollar on Wednesday, erasing gains made earlier in the day as the strong demand at European Central Bank's first ever tender of 3-year loans failed to ease concerns about the region's ongoing debt crisis.  
 
The single currency rose initially at Asian open and continued to climb in early European trading on short-covering ahead of the European Central Bank's first-ever offer of 3-year loans before spiking to session high at 1.3199 in European morning after ECB 3-year tender results. However, euro quickly tumbled to an intra-day low at 1.3025 in New York morning amid concern that ECB's measures to support its banking sector will not be enough to contain the region’s worsening sovereign-debt crisis.  
 
In euro crosses, EUR/JPY and EUR/GBP tumbled from 102.55 to 101.45 and 0.8374 to 0.8303 respectively.  
 
The European Central Bank allotted 489.2 billion euros in its first ever 3-year lending operation vs Reuters consensus was 310 billion euros.  
 
The British pound strengthened in early European morning on active cross-buying against euro and climbed to session high at 1.5775 in European morning on improved risk appetite before tumbling in tandem with euro to an intra-day low at 1.5648 in New York morning.   
 
Minutes to the Bank of England's December 7-8 meeting showed policymakers left the door open for an additional injection of cash into the faltering economy in February, judging that the time was not ripe yet for more easing given uncertainty about the euro crisis. All nine members of the central bank's Monetary Policy Committee voted to maintain the target level of quantitative asset purchases at 275 billion pounds and the key interest rate unchanged at the record low of 0.5%.  
 
Versus the yen, although the greenback fell to an intra-day low at 77.69 in European morning, dollar climbed to a session high at 78.11 in New York afternoon on risk aversion.  
 
In other news, Swiss Finance Minister Eveline Widmer-Schlumpf said 'government is of view that Franc is overvalued, hard to say what is correct value; further measures possible if forex markets turn worse; examining capital controls including negative rates.'  
 
On the data front, Germany's November import price index rose 0.4% m/m and 6.0% y/y after falling 0.3% m/m and rising 6.8% y/y in October. U.S. existing home sales were 4.42M in Nov, lower than forecast of 5.05M, but up from 4.25M in Oct which was revised down fm 4.97M.  
 
Data to be released on Thursday:  
 
New Zealand GDP, UK current account, GDP final, U.S. jobless claims, GDP, PCE core, Uni. Michigan survey, leading indicators.