The EUR advanced modestly Tuesday, levitating above an 11-month low as thin holiday trading and a dearth of bad news about Europe’s debt woes made investors momentarily unwilling to probe its downside.
Trading holidays in the U.K., Canada and swaths of Asia have rendered most markets sluggish and illiquid. Yet for the few market participants on duty, the eurozone’s fiscal and economic struggles remain front and center. On Monday, France reported that its jobless rate hit its highest level in 12 years, coming just as the eurozone’s second-largest economy struggles to convince investors it has a handle on its mounting debt problems.
The sparse dealings kept the common currency etched into a tight trading band. Although markets are still heavily positioned for more declines in the EUR due to broad pessimism about the outlook for Europe’s debt travails, analysts said there is little impetus to push the currency below $1.2945, the 11-month low it hit mid-month. In Tuesday trading, the euro hovered near $1.3075.
Investors also remained concerned about the threat of eurozone credit-rating downgrades. Market observers have all but resigned themselves to one or more of the eurozone’s largest economies losing their triple-A credit rating, with France and Germany at the epicenter of those fears.
Analysts are mulling whether last week’s record three-year tender by the European Central Bank would provide the impetus needed for eurozone banks to buy distressed government bonds.
Early indications, however, illustrate that the sizeable bond-buying by European banks some expected hasn’t yet materialized. ECB data showed that bank deposits with the central bank rose to EUR411 billion, compared to a EUR265 billion water mark just before the ECB’s tender.
Mixed U.S. data Tuesday helped to keep stocks and other higher-returning assets buoyed, which curbed demand for the low-yielding dollar. Consumer confidence in the U.S. surged to its highest level since April, but a separate report showed the U.S. housing market continued to weigh on the economy, with home prices falling 3.4% for the year as of October.
The USD bought Y77.82, down from Friday’s Y77.95 close. The GBP rose to $1.5669, up from the previous US close at 1.5625. The USD also dipped against the CHF to 0.9342, down from Friday’s close at 0.9356.
EasyForexNews Research Team