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Published On: Sun, Nov 11th, 2012

Euro Drops to Two-Month Low as Industrial Production Tumbles

During trading on Friday, the euro hit a two-month low versus the United States dollars. These losses could be extended as the crisis in Europe continues to unfold. Economic data indicates that Germany is likely to face slower growth in the fourth quarter and in the first quarter of 2013. This news was released by the Economy Ministry in Germany. As the Eurozone’s largest economy, slowed growth in Germany can drag down the rest of the European Union. German data is compounded by a decline in industrial production in France. According to France’s central bank, industrial production decreased in the month of October. France is expected to slip back into a recession during the fourth quarter of 2012. This decline in economic growth throughout the core of Europe could have a detrimental impact on the world economy. Chinese exports in particular will lose a valuable export market.

During the session, the euro dropped to a low of $1.2688 versus the greenback. This marks its lowest level since September 7. Most recently, it was 0.25 percent lower for the day at $1.2713. It is 0.23 percent down versus the yen at 101.01. During the session, it reached a one-month low of 100.38 yen. Many investors believe that the euro will stay between the 100-day moving average of $1.2636 and September’s low of $1.2625. If conditions worsen in Europe, the Eurozone’s currency could fall to the $1.25 level over the next few weeks.

Dollar Advances

The United States dollar rose 0.29 percent against a basket of currencies. It reached 81.034 by the end of the day and had an intraday peak of 81.087. This peak level was a two-month high for the dollar. Investors are still concerned about the approaching fiscal cliff in the United States. If this budgetary issue is not resolved, it would prompt an estimated $600 billion in tax increases and spending cuts. Despite this worry, investors are still more concerned about debt problems and bailouts in Europe. Next week, President Barack Obama will meet with the United States Congress to figure out a compromise to prevent reaching the fiscal cliff.

United States consumer sentiment rose to its highest level for more than five years. This new data propped up stock prices and US Treasury yields. The greenback dropped to a three-week low of 79.06 against the Japanese yen during the session before ending at 79.48. This marks the yen’s strongest level for more than three weeks as investors flooded Japanese coffers in search of a safe haven.

Upcoming Vote in Greece

On Sunday, Greece will be voting on the nation’s budget for 2013. This vote is viewed as one of the next major hurdles for the debt stricken nation. Previously, the country voted to pursue an austerity plan valued at 13.5 billion euros. Despite the adoption of these austerity measures, the European Union is viewed as unlikely to grant Greece any additional aid.

Spain has managed to avoid requesting an official bailout so far this year. With the prospect of assistance from the European Central Bank in everyone’s mind, Spain has managed to decrease its borrowing costs and met its target for 2012 bond issuance. If it chooses to request aid in the future, it would enable the European Central Bank to purchase Spanish bonds and would prop up the euro.

During the session, the Australian dollar lost 0.12 percent versus the greenback. In the most recent trade, the Aussie was at $1.0388.

Reports from Europe showed that industrial output in Sweden dropped by the largest amount for three years during the month of September. This fall raised expectations among market analysts that the central bank in Sweden would adopt a rate cut in December. The Swedish crown lost ground versus the euro and the greenback after the data was released.

The Bank of England and Fiscal Easing

News came out on Friday that indicated the Bank of England has adopted an unusual method of fiscal easing. The United Kingdom’s central bank is now moving income from government bond purchases to the government of the United Kingdom. Effectively, this loosens monetary policy in the nation. After the news was released, the sterling dropped 0.4 percent to $1.5901. This was its lowest level versus the greenback for over two months. The pound also dropped against a host of other currencies during the trading session.

Chilean Peso Declines

The peso dropped to its lowest level for nearly two weeks. Copper sales fell amid concerns over budget issues in the United States and Europe. As Chile’s largest export, lower sales of copper could severely impact the Chilean economy. During the day, the peso fell 0.7 percent to end at 480.50 versus the greenback. Local investors in the peso dropped their long peso position on November 7 by nearly $795 million. It is presently at a two-week low of $16.6 billion.

Last month, copper sales accounted for 60.7 percent of exports from Chile. This week marked the fifth week of decreased sales due to industrial data from France and Sweden. Copper futures were briefly at their lowest level since August 31.

BNY Ends Lawsuit

The Bank of New York Mellon Corporation finally reached an end to its lawsuit. The settlement grants $1.14 million to Grant Wilson. Wilson, a former trader at the bank, originally came forward with accusations that BNY was taking money from state pension funds when it operated foreign-currency transactions. Overall, the settlement is expected to be profitable for retired and working Virginian employees.

The case against BNY Mellon focuses on how custody banks handle foreign exchange transactions. In the case, BNY Mellon was accused of charging undisclosed markups for six different retirement funds. According to BNY Mellon, the bank offered currency exchange rates that customers could refuse at any time. Despite this claim, the states that are suing BNY Mellon believe that the bank was responsible for obtaining the best exchange rate for its clients and disclosing markups. Their case contends that BNY Mellon misled customers in how the prices were set and how fees for foreign exchange transactions were structured.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.

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