Markets Turn on USD Despite EUR Gloom
Despite a raft of negative data coming from Europe over the last 24 hours, the markets found enough hope coming from the EU Summit to ditch the USD and find favor in the EUR.
The USD fell against major currencies and the EUR made gains even though a fiscal pact between the 27 member states designed to enforce budget discipline was rejected by both Britain and the Czech Republic. However, the focus on reducing unemployment down to an average of 10% and talks on support small and medium sized businesses was enough to persuade investors to cash in gains made in the USD yesterday and pile in to more risky positions and commodities.
Also coming from Europe yesterday was the news that France, the 2nd largest economy in the Eurozone, reducing its growth forecast for 2012 from 1%, down to 0.5%. However, the IMF still expects the French economy to grow by just 0.2% this year, down from a revised 1.4%.
There was more trouble for Spain. Last week it announced that unemployment at 22% was at its highest level for 17 years, with 48% of all 16-24 year olds unemployed, twice the Eurozone average. Yesterday, the Spanish statistics office confirmed that the Spanish economy contracted by 0.3% in Q4 of 2011, fueling speculation of a recession in Spain.
With no debt deal yet to be agreed in Greece, investors still found enough hope coming from the EU Summit to cause a rally in the EUR. The EUR/USD was up 0.350%, trading at 1.3189, whilst the EUR/JPY was up 0.221%, trading at 100.57. There were also gains made in the GBP/USD, up 0.169%, trading at 1.5736 and in the AUD/USD, up 0.330%, trading at 1.0634, as investors abandoned the greenback.
The weakened USD saw a rally in commodities, with much of the losses recouped from yesterday. Gold was up 0.29%, trading at 1739.45 and Crude Oil was up 0.60%, trading at $99.38 a barrel.
Today will be dominated by events in Brussels as the last day of the two day summit should spark some volatility in the market. Expect investors to wait and see what happens but some intraday volatility caused by profit taking.
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