Forex Market Review – Euro tumbles on lost hope for a stronger rescue fund

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Euro was sold off against the dollar after Germany dampened hopes of a boost to the euro-zone’s rescue fund. A German official was pessimistic about an agreement on the rescue fund coming out of the EU summit. Last night the euro rose on optimism that the current temporary 440 billion euro European Financial Stability Facility and the future permanent European Stability Mechanism, which is due to start in 2013, were going to be combined to boost the fund firepower.  The German official said the two funds will not run simultaneously. EURUSD fell from an early high of 1.3452 to 1.3361. Investors ignored better than forecast German industrial production data and a successful bond sale by the German government.

 

Sterling reached an early high of 1.5636 against the dollar but then fell sharply to a session low of 1.5593 after weal domestic data. UK industrial production fell 0.7 percent in October which was its fastest pace in six months beating estimates and raising concerns the economy may be heading for recession.

 

The Swiss franc weakened against the euro today on the increasing likelihood of the Swiss National Bank lifting the franc-euro cap and introducing negative interest rates by next week’s policy meeting. Speculation is growing that the current 1.20 franc peg against the euro will be raised higher. EURCHF hit a one-month high 1.2442. USDCHF rose to 0.9286 from 0.9226.

 

The yen gained against the euro after risk appetite was dashed by the German official’s pessimistic comments. EURJPY fell 0.6 percent in the session from 104.51 to 103.84. Dollar was little changed against the yen, trading a range since Monday, supported above at 77.64. The dollar will remain under pressure versus the yen as Japanese retail investors continue repatriating funds from overseas markets ahead of the year-end.

 

The ICE Dollar Index, which tracks the greenback against a basket of currencies, was at 78.600 compared with 78.539 late Tuesday in New York.