Asian FX and equity markets continued the risk off sentiment after headlines from Europe. European Central Bank President Mario Draghi did not signal in his speech that the ECB would expand its bond purchase program. Further to this negativity, news leaked out overnight that the meeting of European leaders in Brussels has so far failed to secure the full backing of all the 27 EU member countries for treaty changes to enable tighter fiscal union and coordinating fiscal policy that is needed to help fight the euro zone debt crisis. The 17 euro zone members vowed to pursue an intergovernmental deal without all members.
European Council President Herman van Rompuy said that members had not come to an agreement on euro bonds but that euro-area member states would continue to work on fiscal integration
Meanwhile, China released some key economic data today, which indicated the world’s second largest economy is slowing down. China’s industrial output rose at the slowest pace since August 2009 to rise by 12.4 percent last month, according to data released today by the Beijing-based National Bureau of Statistics. The Chinese consumer inflation rate eased sharply to 4.2% in November, compared to a 5.5% rise in October and below the forecast 4.4%. This fuels speculation that China will now be able to introduce further monetary policy easing.
The MSCI Asia Pacific Index dropped 2 percent to decline for the second day. Japan’s Nikkei Stock Average fell 1.6%. Australia’s S&P/ASX 200 index lost 2.2%.
Damp market sentiment weighed down the euro, and more heavily on other risk currencies such as the Australian and New Zealand dollars.
The euro slipped to 1.3309 against the dollar during Asian trading from the 1.3338 open level.
The Australian and New Zealand currencies suffered steeper declines, with AUDUSD dropping to 1.0089 from 1.0188 earlier in the day. NZDUSD fell to 0.7657 against the USD from 0.7743.
USDJPY fell to 77.55 from 77.72 as the safe haven Japanese yen was in demand. Japan final GDP grew more than expected to 1.4 percent from the forecast 1.3.