Poor appetite for Spanish debt suggests a drop in investor confidence as US jobs data boosts the dollar

Tom Tong06/Dec/2012Currency Updates

EUR

The euro fell from a seven-week high against the dollar before the release of a report predicting to show the single currency area’s economy contracted, adding to signs its three-year debt crisis is hindering growth.

It slid versus most of its major peers after Standard & Poor’s downgraded Greece to selective default. Along with data due today on the euro area’s third-quarter gross domestic product, European Central Bank President Mario Draghi and his board meet on policy. The European Central Bank is predicted to refrain from cutting interest rates any further after its pledge to buy government bonds lowered borrowing costs and boosted confidence that the euro area can emerge from recession next year. They are expected to stay at their record low level of 0.75 percent.

USD

As the fiscal cliff draws ever closer, the White House hardened its position that Congress should raise the U.S.’s borrowing limit without preconditions, adding an unpredictable new element into the high-stakes budget talks. In a Wednesday speech to top corporate chiefs, President Barack Obama said he wouldn’t negotiate with Republicans on this issue as he did in 2011.

Key data released today unemployment claims, but the world will be looking to the US tomorrow for the release of non-farm payroll figures.

GBP

Sterling edged up from one-month lows against the euro on Wednesday after a gloomy UK budget statement generally fell in line with expectations.

But forecasts from finance minister George Osborne that Britain would miss its debt-reduction and growth targets left the currency looking vulnerable.

Analysts said the poor UK economic outlook might revive prospects of more monetary easing by the Bank of England and increase the risk of a credit agency cutting the UK’s top-notch rating, both of which would be negative for sterling.

It will be fairly busy regarding data released today, with a decision on extending the asset purchase facility (QE), a rate statement and interest rate decision.

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Written by Tom Tong

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