Market Review – 17/12/2010 21:42 GMT
Euro tumbles after Moody’s downgrades Ireland by five notches
The single currency tumbled against the U.S. dollar on Friday after Moody’s downgraded rating of Ireland to BAA1 from AA2 and said its outlook was negative.
Although euro climbed to 1.3360 after the release of strong German Ifo index, which came in at 109.9 versus the forecast of 109.1, the pair swiftly fell after Moody’s downgraded on Ireland by five notches. Euro was also pressured as IMF cited a “significant” contagion threat from Ireland. The single currency later nose-dived to as low as 1.3133 before staging a recovery on weekend short-covering in late New York trading.
In other news, ECB said it had signed 10 billion sterling swap facility agreement with BOE. The agreement with BOE runs until September 2011 and it allows sterling to be made available to Irish central bank. European Central Bank Governing Council member Axel Weber said existing instruments are much better suited to fight the eurozone debt crisis than euro bonds.
Versus the Japanese yen, dollar initially dipped to 83.69 as U.S. yields retreated in Asia, however, the pair rebounded strongly and rose to 84.21 in NY mid-day before retreating again.
The British pound briefly ratcheted higher to 1.5647 in Asia but retreated on dollar’s broad-based gain and later nose-dived to 1.5454 before staging a recovery. Cable was pressured after Lloyds Banking Group announced its Irish portfolio and expected a further 10% of the 26.7 billion pounds of Irish portfolio would become impaired by the 2010 year end.
In addition, Britain’s Prime Minister Cameron said he, German Chancellor Merkel, the French President Sarkozy and others would publish letter on Saturday on restrained EU budget. He added that Britain, France, Germany are united in the need to stop budget getting out of control. The letter would demand real term freeze of EU budget in 2014-2010.
Economic indicators to be released next week include:
Japan leading indicators, Germany PPI, EU current account, Consumer Sentiment, US Chicago Fed National Activity on Monday, Australia’s Board Minutes, Japan BOJ rate decision, Germany Gfk index, UK PSNCR, Canada CPI data on Tuesday, New Zealand current account, Japan trade data, Germany import price index, UK GDP, US home sales data and GDP on Wednesday, New Zealand GDP, US personal income, PCE index, durable goods, jobless claims and new home sales on (Japanese market holiday) Thursday, Germany and US market holiday on Friday.