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Dollar Weakening As Year-End Approaches

Dollar Weakening As Year-End Approaches
12/28/2012 12:23 PM ET

The dollar has given back its early gains against its major European competitors on Friday and has also weakened in comparison to the Japanese Yen. With the end of the year rapidly approaching, it appears unlikely that Democrats and Republicans will come to an agreement on the fiscal cliff.

President Barack Obama is scheduled to hold a meeting with Congressional leaders later this afternoon, in what appears to be a last-ditch effort to come to a solution. Unless an agreement is reached, approximately $600 billion in automatic tax increases and government spending cuts are due to go into effect at the end of the year.

Pending home sales in the U.S. rose for the third straight month in November, according to a report released by the National Association of Realtors on Friday, with the pending home sales index reaching its highest level in well over two years.

NAR said its pending home sales index rose 1.7 percent to 106.4 in November from a downwardly revised 104.6 in October. Economists had been expecting the index to increase by about 1.8 percent.

Chicago-area business activity expanded for the second consecutive month in December, according to a report released by the Institute for Supply Management - Chicago on Friday, with the Chicago business barometer rising by more than expected.

The ISM Chicago said its Chicago business barometer climbed to 51.6 in December from 50.4 in November, with a reading above 50 indicating an increase in business activity. Economists had expected the index to rise to 51.0.

Meanwhile in Europe, Greece's four largest banks need EUR 27.5 for recapitalization, the country's central bank said in a report published Thursday. These banks, identified as "core banks", were National Bank of Greece, Eurobank, Alpha Bank and Piraeus Bank.

The Bank of Greece said that the EUR 50 billion earmarked for bank recapitalization in February this year is adequate. The recapitalization needs of Greece's overall banking sector amounted to EUR 40.5 billion, according to the central bank estimates.

The Spanish Central bank, in its latest quarterly bulletin, said that the economy has contracted further in the fourth quarter, deepening the ongoing recession, as economic activity continues to be dragged down by high unemployment and the banking crisis.

The dollar climbed to a high of $1.3165 against the Euro Friday morning, but has since pulled back to around $1.3220.

The Eurozone economy has likely contracted further in the fourth quarter and slid deeper into recession, the Eurocoin indicator compiled by the Center for Economic Policy Research and the Bank of Italy showed Friday.

The Eurocoin indicator, which estimates euro area's actual GDP growth, excluding seasonal variations and volatility in output, moved up to 0.27 percent in December from 0.29 percent each in November and October.

The index continued to remain in the negative territory, suggesting that the euro area economy is set to contract further the final months of 2012. The December figure, however, suggested that the rate of contraction has eased.

The French economy expanded only 0.1 percent in the third quarter from the prior quarter, final data from the statistical office Insee showed Friday. The third quarter growth was downgraded from 0.2 percent and follows a 0.1 percent fall in the second quarter.

French consumer spending recorded surprise improvement in November, data from the statistical office Insee showed Friday. The overall consumer spending was up 0.2 percent month-on-month in November, after a revised 0.1 percent fall in the previous month. Economists expected spending to remain unchanged.

Spanish retail sales decreased at a slower rate in November, and the rate of fall was below economists' forecast, latest data showed Friday. Retail sales decreased 7.8 percent on an annual basis in November, after falling 9.7 percent in the previous month, statistical office INE said. Economists were looking for a 10.3 percent fall.

British employees are facing a 'hard slog year' ahead with higher unemployment, longer working hours and continued squeeze in wages, a report from the Jobs Economist said Friday.

Another report from the Chartered Institute of Personnel and Development, meanwhile, said that employment in the U.K. is set to grow further in 2013 and will likely reach the historic milestone of 30 million.

According to Jobs Economist, fewer jobs will be created in 2013 than this year and those in employment can expect to work longer hours without extra real reward, despite a somewhat stronger economic growth.

British Prime Minister David Cameron's attempts to claw back powers from Brussels could inflict serious damage to the single market and could even cause the EU to fall apart, European Council President Herman Van Rompuy was quoted as saying on Friday.

In an interview to the Guardian newspaper, Van Rompuy said "if every member state were able to cherry-pick those parts of existing policies that they most like, and opt out of those that they least like, the union in general, and the single market in particular, would soon unravel."

"All member states can, and do, have particular requests and needs that are always taken into consideration as part of our deliberations. I do not expect any member state to seek to undermine the fundamentals of our co-operative system in Europe," he told the newspaper.

The greenback rose to $1.6078 against the pound sterling Friday, but has since dropped to around $1.6160.

The buck has retreated a 27-month high of Y86.623 against the Japanese Yen, to around Y86.100 on Friday.

The unemployment rate in Japan was a seasonally adjusted 4.1 percent in November, the Ministry of Internal Affairs and Communications said on Friday. That beat forecasts for 4.2 percent, which would have been unchanged from the previous month.

Core consumer prices in Japan were down 0.1 percent on an annual basis in November, the Ministry of Internal Affairs and Communications said on Friday, which matched forecasts following the flat reading in October.

Retail sales in Japan were up 1.3 percent on year in November, the Ministry of Economy, Trade and Industry said on Friday, standing at 11.086 trillion yen. That beat forecasts for a gain of 1.1 percent following the 1.2 percent contraction in October.

Industrial production in Japan fell a seasonally adjusted 1.7 percent on month in November, the Ministry of Economy, Trade and Industry said in Friday's preliminary reading, reversing the previous month's gains. The headline figure was well below forecasts for a decline of 0.5 percent following the 1.6 percent increase in October.

by RTT Staff Writer

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