Forex news

Yesterday EU leaders completed their budget control treaty; the IMF indicated that Portuguese debt is sustainable; and Italy sold euro 7.5 billion in an improving bond auction environment. The safe-haven US dollar weakened against most currency counterparts. With investors taking on more risk, the higher yielding Australian and New Zealand dollars gained and Asian equities were boosted. 

The meeting between EU leaders held in Brussels yesterday did not end with an accord on Greece as political leaders try pushing more of the burden on private creditors. At the meeting, the sixteenth meeting held since the beginning of the euro zone debt crisis, Germany demanded a better implementation of reforms by Greece recommending an EU-appointed overseer of Greece’s budget – a proposal rejected by the majority of participants. It is clear that EU leaders do not wish to increase the euro 130 billion offer of loans made in October thereby forcing private creditors to absorb a higher percentage of the losses. The Greek Prime Minister said that he is strongly committed to reaching a debt-swap agreement with Greece’s creditors and expects that an agreement will be reached. In the meantime Portugal’s debt has been judged as sustainable by the EU and the IMF. And Italy sold euro 7.5 billon of debt yesterday at yields just above 6 pct in an overall improved liquidity environment following the ECB’s December intervention providing low interest loans to banks.

EU leaders furthermore completed the fiscal-discipline treaty which requires euro zone countries to integrate balanced-budget rules in national legislation, and imposes sanctions on high-deficit countries. Euro zone countries and eight EU countries outside of the euro zone backed the treaty. UK and Czech Republic did not.

The yen climbed to a three-month high against the US dollar increasing speculation that Japan’s government may intervene in the forex market in order to weaken the Japanese yen. Japan’s unemployment rate unexpectedly rose to 4.6 pct last month as the strong yen continues to pressure the manufacturing sector. The Japanese government has approved four extra budgets totaling approximately 20 trillion yen, US dollar 260 billion to support demand in the economy.

Silver traders remain bullish on the metal as industrial demand for silver has surged to record levels and investor demand is increasing again. Silver has risen 25 pct since the beginning of the year after a 2011 that saw silver prices rising to highest level since 3 decades before plunging 45 pct. With an improving economic background, silver traders may continue buying the metal. To note that the IMF and the World Bank have bought reduced their 2012 growth expectations to 3.3 pct and 2.5 pct respectively. Silver remains a highly volatile metal for trading purposes. Gold also climbed to $1745 per ounce. The god and silver ratio now stands at around 52.