The euro had found some reprieve, albeit temporarily, after forecast-beating US unemployment data helped boost stock markets and risk sentiment. Nevertheless, the US dollar remains stronger on worries that new instability in Rome will undermine the eurozone’s recent progress with containing the debt crisis. The pound’s struggles against the US dollar could continue although sterling is finding support from a weaker euro and Japanese yen, with the East Asian currency still being sold ahead of elections in Japan on December 16. Bank of England Governor Mervyn King will be speaking and his comments come in front of UK unemployment data.German ZEW investor sentiment index could prove to be positive for the euro but may fail to stir currency markets ahead of the Federal Reserve policy announcement.
Sterling
A disappointing UK budget update was compounded by weak data covering Britain’s manufacturing industry, raising more uncertainty about the country’s fragile economic prospects and putting sterling under even more pressure against a rising US dollar. However, sterling is trading at over two-week highs against the euro after Germany’s central bank warned that its economy may soon have to tackle economic recession.
US dollar
US unemployment fell to 7.7 per cent in November, the lowest in nearly four years according to official data, while US employers added more jobs than expected in the same month, defying expectations that superstorm Sandy would do more damage to the labour market. Non-farm payrolls increased by 146,000 last month versus estimates of a 93,000 gain. The figures gave stock markets a lift and limited demand for safe haven assets; however, the US dollar has continued to attract gains from a leaking euro, with trouble in Italian politics adding to dire growth numbers from the European Central Bank, which is seriously undermining the euro and other European currencies.
Euro
The euro has fallen sharply to two-week lows against the US dollar and could face further losses with political instability in Italy threatening to pull Rome’s debt outlook back into the headlines. Prime Minister Mario Monti, who has been instrumental in bringing the eurozone’s third largest economy under a more stable fiscal programme, announced that he will step down after losing vital support in Government, the single currency dropped after the European Central Bank published dire economic forecasts for the euro area and hinted at cutting interest rates.