EUR – The euro pared early gains as the outlook for the region grows increasingly gloomy. A European Commission report released overnight showed that the region’s leaders expect the Eurozone economy as a whole to virtually grind to a standstill next year. With the ongoing debt crisis weighing on the region’s weaker economies, the outlook for export-driven Germany is equally morose with Europe’s largest economy forecast to grow just 0.8% in 2013. Region-wide growth is expected at 0.1%, down from a previous forecast of 1.0%. Adding to the tensions, investors are anxiously waiting to see if the Greek parliament will pass measures containing structural reforms and spending cuts aimed at securing the nation’s next “bailout” tranche. Greece’s foreign creditors, namely Germany, have become increasingly open to easing conditions attached to several aid programs. However, with German Chancellor Merkel embarking on a reelection campaign of her own, she may be less willing to capitulate to Greek complaints.
GBP – Sterling is mixed this morning, falling against the dollar, while gaining versus the euro. Trade is however relative quiet as investors await a key BoE decision due Thursday morning. While policymakers have been rather hawkish in tone lately, recent data suggests that the latest uptick in British GBP may be brief. With the Bank’s current asset purchase program expiring this month, investors will be looking for any mention of the need to increase QE levels.
JPY – the yen has strengthened back below the key 80.0 mark against the dollar as stocks and commodities tumble. With Obama securing reelection, the yield gap between US and Japanese short-term interest rates narrowed, giving investors less reason to hold yen-alternatives. While the ongoing struggles in Europe and the “fiscal cliff” in the US will keep the “safe-haven” yen well supported, a strong break below 80 will likely spark interventionist rhetoric from Japanese policymakers.
Commodity Currencies – The commodity linked currencies are broadly lower this morning as investors seek safer assets. The CAD pared early gains, heading back towards the higher end of its recent ranges as the price of oil – Canada’s main export – falls, and global stocks decline. Similarly, the AUD is back towards the weaker end of its recent ranges after rallying overnight as investors look for less volatile assets. Interestingly enough, yields on both Canadian and Australian government bonds are lower this morning as investors are increasingly attracted to both nations’ AAA credit rating.
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