Euro Down On Italian Concern, U.S. Fiscal Cliff Worries

The euro edged lower against most of its major rivals on Monday as political developments in Italy cast doubts on the resolution of the eurozone crisis, sending the European equities and high-yielding currencies down in early deals.

The Italian Prime Minister Mario Monti has decided to resign, after losing support of his predecessor Silvio Berlusconi's PDL party. Fresh polls are likely to take place in February and Berlusconi has indicated that he would run for the premiership in forthcoming elections.

The Italian economy contracted as previously estimated in the third quarter, final data from statistical office Istat showed today. Gross domestic product (GDP) decreased a seasonally adjusted 0.2 percent sequentially in the third quarter, in line with the preliminary estimates. In the second quarter, GDP had decreased by 0.7 percent. The latest was the fifth consecutive contraction.

Although upbeat jobs data from the U.S. lifted sentiment, gains were capped on concerns about the looming fiscal cliff as a meeting between the U.S. president Barrack Obama and house speaker John Andrew Boehner on Sunday failed to make any significant decisions on the issue.

Even as the fiscal cliff concerns weighed down on the risk-sentiment, market participants are anticipating more stimulus measures from the US Federal Reserve when it concludes its monetary policy meeting and announce its interest rate decision later on Wednesday.

Eurozone investor confidence increased for a fourth consecutive month in December, data released by the think-tank Sentix showed today. The Sentix Index rose to -16.8 in December from -18.8 in November and -22.2 in October. Economists had forecast an increase in the reading to -16.

Elsewhere, Germany's exports grew unexpectedly by 0.3 percent in October from September, Destatis reported today. Economists had forecast shipments to fall 0.3 percent, following last month's 2.4 percent drop.

Imports advanced 2.5 percent month-on-month, offsetting September's 1.4 percent fall. Imports were expected to climb just 0.4 percent. On a yearly basis, exports increased 10.6 percent and imports gained 6 percent.

The trade surplus, thus increased to EUR 15.8 billion, in line with forecast, from EUR 11 billion in September. The current account surplus, at the same time, totaled EUR 13.6 billion, up from EUR 9.9 billion in the prior month.

The common currency reached at 106.0 against the yen around 5:15 am ET, its weakest level since November 28. Euro bulls trimmed their positions in high-yielding currencies helped the EUR/JPY pair pulling back from the key 108.0 level hit last week, with 105.30/40 seen as the next key support level.

Japan's economy sank into recession with the gross domestic product contracting for a second straight time in the third quarter, revised estimates from the Cabinet Office showed today.

GDP fell an annualized 3.5 percent in the September quarter, in line with preliminary figures. At the same time, the Cabinet Office revised down the estimates for the second quarter to show a 0.1 percent contraction.

The single currency reached a weekly low of 1.2065 against the Swiss franc around 5:45 am ET, having erased last week's solid gains of a fresh 2-month peak at 1.2171. Immediate support for the currency cross is visible at 1.2050.

The euro traded lower against the currencies of the U.S. and the U.K. in early deals Monday but failed to re-test their Asian session lower-levels. The EUR/GBP traded in a narrow range of 0.8045 and 0.8060, while the EUR/USD pair moved in a range of 1.2921 and 1.2887.

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