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Dollar Extends Weakness Against Euro Ahead Of Fed Decision

Dollar Extends Weakness Against Euro Ahead Of Fed Decision
12/12/2012 12:22 PM ET

The dollar has extended its recent weakness against both the Euro and the pound sterling on Wednesday, but is gaining ground against the Japanese Yen. The Federal Open Market Committee is about to conclude its 2-day meeting and will make its decision regarding interest rates. The Fed is expected to announce further stimulus, as Operation Twist is set to expire after 2012.

Import prices in the U.S. fell by much more than anticipated in the month of November, according to a report released by the Labor Department on Wednesday, with the decrease largely due to a drop by fuel import prices.

The report said import prices fell by 0.9 percent in November after edging up by a revised 0.3 percent in October. With the decrease, import prices fell for the first time since July. Economists had expected prices to decrease by about 0.4 percent compared to the 0.5 percent increase originally reported for the previous month.

Additionally, the Labor Department said export prices dropped by 0.7 percent in November after coming in unchanged in October. The drop came as a surprise to economists, who had expected export prices to rise by 0.3 percent. European finance ministers are also meeting today to discuss bank supervision and financial reform.

The dollar has been losing ground against the Euro since the beginning of the trading week, pulling back from a high of $1.2885 on Monday, to a 4-session low of $1.3052 on Wednesday.

Industrial production in Eurozone declined for a second consecutive month in October, but at a slower pace compared to the previous month, data released by Eurostat showed Wednesday. Production dropped 1.4 percent month-on-month in October after a 2.3 percent fall in September. Economists expected no change in production volume.

Germany's harmonized index of consumer prices rose less than estimated in the preliminary report in November, final figures published by the Federal Statistical Office showed Wednesday. The HICP inflation was 1.9 percent in November, a tad below 2 percent reported initially. On a monthly basis, HICP fell 0.2 percent compared with 0.1 percent fall reported earlier.

France's harmonized inflation eased more than expected in November on a renewed drop in petroleum product prices, the statistical office Insee said Wednesday. Inflation fell to 1.6 percent from 2.1 percent in October. The inflation rate was forecast to ease to 1.8 percent.

France's current account deficit narrowed in October, mainly due to increase in surplus on trade in services, data from Bank of France showed Wednesday.

The deficit fell to EUR 2.8 billion in October from EUR 3.4 billion in September. According to the central bank, the improvement is mainly due to an increase in surplus on services trade to EUR 2.8 billion from EUR 2.1 billion.

The stickiness in U.K. inflation may persist for a while, Bank of England Chief Economist Spencer Dale said Wednesday. In a speech in London, he said the stickiness of inflation is a by-product of the real adjustment that economy has been forced to make and there is no easy fixes to such real adjustments.

The buck has also extended its recent weakness against the pound sterling on Wednesday, falling to $1.6148, its lowest level since Halloween.

U.K. claimant count declined unexpectedly in November and employment reached a record through the three months to October, confounding the weakness in economic activity.

Claimant count dropped by 3,000 month-on-month to 1.58 million in November, the Office for National Statistics said Wednesday. Economists had forecast the figure to rise by 7,000. Claims rose by 6,000 in October, instead of the initially reported 10,100.

The greenback has been gaining ground against the Japanese Yen since the beginning of the trading week, rising from a low of Y82.107 on Monday, to over an 8-month high of Y83.191 on Wednesday.

Core machine orders in Japan climbed a seasonally adjusted 2.6 percent on month in October to 704.4 billion yen, the Cabinet Office said on Wednesday, rising for the first time in three months. The headline figure was shy of forecasts for an increase of 3.0 percent following the 4.3 percent contraction in September and the 3.3 percent decline in August.

An index measuring tertiary industrial activity in Japan was down a seasonally adjusted 0.1 percent on month in October, the Ministry of Economy, Trade and Industry said on Wednesday, standing at 99.2. That beat forecasts for a contraction of 0.4 percent following the 0.3 percent increase in September.

by RTT Staff Writer

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