Dollar weakens on speculation of further stimulus as German ZEW dissapoints

Tom Tong12/Dec/2012Currency Updates

GBP

Despite a quiet day of date in the UK, the Pound continued to outperform the dollar. This was thanks to the speculation that the Fed would increase its monetary stimulus program and so demand for the dollars high yielding counterparts soared.

At 10:30am GMT today we will get hold of the UK’s employment count change, which will be released together with the unemployment rate. The employment numbers are expected to have deteriorated in October as weak economic prospects take its toll on job hunters.

EUR

The Euro rallied against the dollar yesterday for the second straight day. The better then expected ZEW economic survey and the positive result Spanish bond auction were the main reasons behind the EUR/USD rally. The ZEW Economic Survey printed a reading of 7.6, notably higher than the 0.1 forecast. In addition, Germany’s ZEW survey came in at 6.9, opposite the -11.4 reading the market had initially predicted.

Meanwhile, the Spanish bond auction sold 3.9 billion euro in debts, more than the 3.5 billion euro target. This pushed the 12-month bond yield to 2.56% from 2.79%.

No red flags on eurozone’s economic calendar today but we will see the region’s Industrial Production report. It’s projected to show that production increased slightly by 0.3% in October after it had fallen 2.5% in September. Let’s see if the positive forecast will be able to drive Euro Dollar higher again today.

USD

The Greenback had a losing day against most of its major counterparts, except for the Japanese yen, as higher yielding currencies racked in a plenty of gains yesterday.

Euro Dollar broke resistance and traded a new range while the pound also made grounds against the dollar. This was amid speculation that the Fed will add Treasury purchases to an existing program that buys $40 billion in mortgage bonds each month. The so called operation Twist is set to expire at the end of this month so traders are expecting Ben Bernanke to announce something big, probably a new stimulus plan or an extension of their existing program.

However the US congress hasn’t quite come up with a plan for approaching the fiscal cliff yet, which suggests that the Fed might be feeling uneasy about doling out more stimulus.

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Written by Tom Tong

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