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Dollar Weakening Against European Competitors

Dollar Weakening Against European Competitors
12/11/2012 12:35 PM ET

The dollar is extending yesterday's weakness against both the Euro and the pound sterling on Tuesday, but is basically flat in comparison to the Japanese Yen. The sharp increase in the German ZEW economic sentiment data and an easing of concerns regarding the situation in Italy has increased investor risk appetite today.

Investors are also optimistic that a deal can be reached in the United States to avoid the fiscal cliff before the end of the year. Negotiations between Democrats and Republicans have reportedly continued over the past few days, following the weekend meeting between President Obama and House Speaker John Boehner.

There have been reports that Mario Monti is considering running in next year's elections in Italy. Monti announced over the weekend that he will resign as Prime Minister after the country's 2013 budget is approved. His resignation was followed the announcement that his predecessor Silvio Berlusconi's PDL party had withdrawn their support for Monti.

The German economy is likely to log a weaker growth next year as subdued exports and business investment weigh on economic activity, the RWI institute said Tuesday.

The think tank projects just 0.3 percent growth for next year, down from an estimated 0.7 percent expansion in 2012. The institute earlier forecast a 1 percent growth for 2013 and 0.8 percent increase for this year.

The dollar reached a high of $1.2885 early Monday, following the announcement of Mario Monti's resignation, but has fallen to a 3-session low of $1.3006 on Tuesday.

Germany's economic confidence turned positive in December for the first time since May 2012 as the largest euro area economy is expected to avoid a recession, a closely watched survey of financial market experts showed Tuesday.

The Indicator of Economic Sentiment climbed sharply by 22.6 points to 6.9 for December, survey from the ZEW Centre for European Economic Research revealed. Economists had forecast the reading to improve to -11.5.

German wholesale price inflation eased more than expected in November, data from the Federal Statistical Office showed Tuesday. The wholesale price index rose 3.2 percent annually in November, slower than 4.6 percent rise in October. Economists expected the rate of inflation to ease to 4 percent.

France payroll employment in principally market sectors dropped 0.3 percent or 41,700 sequentially in the third quarter, the statistical office Insee showed Tuesday. The decline follows a 0.1 percent or 16,100 decrease in the second quarter.

Bank of England Governor Mervyn King on Monday warned against countries using "actively managed exchange rates" as an alternative to monetary policy and said the trend is growing. In a speech in New York, King said he is very much concerned that 2013 will see the growth of actively managed exchange rates as an alternative to the use of domestic monetary policy.

The greenback has extended yesterday's weakness against the pound sterling on Tuesday, falling to a 3-session low of $1.6121.

A leading indicator of the British economy declined for the first time in four months in October, driven mainly by continued weakness in business confidence, data from a survey by the Conference Board showed Tuesday.

The leading economic index decreased to 102 in October from 102.4 in September, marking the first decline in four months. The pace of decline in British house prices accelerated in November, a survey by the Royal Institution of Chartered Surveyors' (RICS) showed Tuesday.

The RICS house price balance fell to -9 in November from -7 in October. The October reading was the least negative in more than two years. Economists expected the balance to improve to -5. London was the only region to record an increase in prices.

The buck is trading basically flat in comparison to the Japanese Yen on Tuesday, hovering around the Y82.400 level.

Japan's M2 money stock was up 2.1 percent on year in November, the Bank of Japan said on Tuesday, coming in at 819.4 trillion yen. That was below forecasts for an increase of 2.3 percent, which would have been unchanged from the October reading.

With the value of exports falling at a faster rate than the value of imports in the month of October, the Commerce Department released a report on Tuesday showing that the U.S. trade deficit for the month widened compared to the previous month.

The Commerce Department said the U.S. trade deficit widened to $42.2 billion in October from a revised $40.3 billion in September. Despite the increase by the size of the deficit, it still came in narrower than the $42.8 billion deficit forecast by economists.

Wholesale inventories in the U.S. increased by more than expected in the month of October, according to a report released by the Commerce Department on Tuesday, although the report also showed a notable drop by wholesale sales.

The report said wholesale inventories increased by 0.6 percent in October after rising by 1.1 percent in September. Economists had expected inventories to increase by about 0.4 percent.

by RTT Staff Writer

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