EUR/USD, GBP/USD, USD/JPY And USD/CAD Daily Analysis: Decemer 13, 2012

The U.S. dollar declined after the Federal Reserve announced that it would increase a third round of quantitative easing by adding another $45 billion in Treasurys to the monthly purchases. Fed Chairman Ben Bernanke announced that the central bank would leave interest rates low for as long as unemployment stays below 6.5 percent and inflation doesn’t go above 2.5 percent. He also mentioned that the bank would leave the cost of borrowing money between zero and 0.25 percent to bolster economic growth.

These comments prompted the greenback to decline and increased concerns the new measures will weaken the dollar even more. Meanwhile, Canada’s dollar traded close to an eight-week high versus its U.S. counterpart as investors await the Federal Reserve’s policy statement. The Loonie was also supported by higher crude oil prices. According to reports, the commodity climbed 0.8 percent and traded at $86.47 per barrel on the New York Mercantile Exchange.

The euro rallied against the U.S. dollar following news that former Prime Minister of Italy, Silvio Berlusconi, will give up on his plans to become the next Prime Minister of Italy if the current Italian Premier, Mario Monti, consents to enter into the race as head of the “moderates.” The shared currency was also supported by reports from Athens indicating that Greece will buy back more government bonds with a value of 31.9 billion euros from some of its banks as well as from investors.

Economists suggest that this will allows Greece to obtain the next tranche of aid. The euro remained strong despite weak economic reports, but it benefitted from dollar weakness after the Federal Reserve announced its plans for further easing. The British pound gained after the release of better than forecast Employment data, and as the Federal Reserve stated it will augment its balance sheet by $45 billion or Treasurys per month. The Swiss franc advanced versus the greenback as the ZEW Institute confirmed that the economic outlook for Switzerland improved more than anticipated in the month of November; the figures showed it went from -27.9 to -15.5.

The yen dropped to the lowest in eight months versus the U.S. dollar as the polls showed that the Liberal Democratic Party is still in the lead, thereby increasing the likelihood it will win Sunday’s upcoming elections. The yen extended losses as risk appetite improved in the market following news that Italian borrowing costs declined at auction.

And lastly, in the South Pacific region, the Australian dollar remained steady versus the greenback in anticipation of the release of the Federal Reserve’s policy statement. The New Zealand dollar traded close to a nine-month high versus its U.S. counterpart on speculations the Fed would implement further easing. And in Australia, data showed that Consumer Sentiment dipped from 5.20 to -4.10 in December.

EUR/USD- Italy’s Borrowing Costs Decline
The euro sustained considerable gains against the U.S. dollar following reports which indicated that Italy’s bond borrowing costs dropped to the lowest level despite news that Prime Minister Monti plans to resign after the 2013 budget is approved. The shared currency continued to rise as the Federal Reserve announced its intentions to add $45 billion in Treasury purchases per month in order to help fuel economic growth and lower the Unemployment Rate.

On the data front, figures revealed that Industrial Productions fell by -1.4 percent even though analysts anticipated no changes from the previous -2.3 percent. In addition, German CPI posted at 1.9 percent and the euro region’s Harmonized figure came in lower than predicted.
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GBP/USD- Employment Sector Improves
The British [ound rallied after reports indicated that the number of people who applied for Unemployment Benefits declined by -3.0 K after economists predicted it would climb to 7.0K last month. Other data showed that the Claimant Count stayed at 4.8 percent; and the Unemployment Rate showed no changes, remaining at 7.8 percent despite the fact that weekly earnings failed to increase. The sterling benefitted further as the U.S. dollar weakened soon after the Federal Reserve indicated it intends to increase the balance sheet by an added $45 billion of Treasurys per month, now that Operation Twist concludes.
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USD/JPY- LDP Still In The Lead
The yen weakened against the U.S. dollar as the polls showed that the Liberal Democratic Party is still in the lead and may very well win Sunday’s elections. Its leader, Shinzo Abe has asked the Bank of Japan to double its inflation target to 2 percent and to opt for more aggressive monetary easing in order to put an end to 10 years of declining prices. On the data front, releases showed that Machine Orders slipped in October YoY as they climbed by a mere 1.2 percent even as they were expected to go down -5.0 percent; and MoM they posted short of forecasts, but increased 2.6 percent. In addition, the Tertiary Industry Index declined by -0.1 percent and the Domestic Corporate Goods Price Index went up from -0.3 to 0.0 percent. The positive metrics weren’t sufficient to support the yen which extended further losses throughout the day.
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USD/CAD- Greenback Dips to 7-Week Low
The U.S. dollar traded at the lowest in seven weeks versus the Canadian currency as investors awaited for the Federal Reserve’s policy statement. The greenback remained low on speculations the Federal Reserve would replace Operation Twist with other easing measures. The loonie also benefitted from data which showed that the nation’s Trade Deficit contracted in October as imports declined.
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Today’s Outlook
Today’s economic calendar shows that Switzerland will issue PPI, and the Interest Rate Decision. The euro region will release the European Central Bank’s Monthly report as well as the Labor Cost Index. The U.K. will offer data on CBI Industrial Trends Orders. The U.S. will announce Initial and Continuing Jobless Claims, PPI, and Retail Sales. China will announce the HSBC Manufacturing PMI. And lastly, Japan will publish Industrial Production, the Tankan Large Manufacturers Index and the Tankan Non-Manufacturers Index.