Euro Heading Sideways Into New Year; Italian Borrowing Costs Drop

The euro stood practically still versus the dollar on
Wednesday, as traders looked ahead to the new year for clues about
the health of the European system. A significant number of market
players remained away from their desks, extending the Christmas
break on a morning bereft of major economic news from either side
of the Atlantic. Those at work were treated to the results of a
surprisingly successful Italian bond auction. The Italian Treasury
sold its maximum target of EUR 9 billion of 179-day bills at a rate
of 3.251 percent, half of the euro-record 6.504 percent paid in the
previous auction held on November 25. Demand also improved with the
bid-to-cover ratio rising to 1.69 from 1.47. The euro was steady at
$1.3070 versus the dollar, more than a penny from an 11-month low
of $1.2944 set December 14. The single currency weakened slightly
to Y101.540 versus the yen, but was firm at GBP 0.8360 versus the
sterling. The threat of ratings agency downgrades for France and
Germany is looming, but Europe has been eerily quiet for the past
few days, following an unexpected injection of bank liquidity from
the European Central Bank. The ECB last week pumped a record EUR
489.191 billion into the Eurozone financial system in the first
offering of its three-year loans in its latest effort to boost
liquidity. The greater take-up of the long term loans by banks
boosted hopes that a credit crunch in the Eurozone can be avoided.
Further, it was also expected that banks may use these funds to buy
euro area sovereigns bonds. 2012 is shaping up to be a pivotal year
for the euro zone -- some analysts say that competitive imbalances
and the burdens of sovereign debt could splinter the monetary
union. Greek officials insists they will cling to euro zone
membership, and Germany appears increasingly willing to play a role
in keeping its profligate cousins in the loop. In economic news,
the U.K. job market is set to face its toughest year in two decades
next year as unemployment is forecast to rise further, a think tank
reportedly said Wednesday. Unemployment is forecast to climb to
2.85 million by the end of 2012 and the jobless rate will rise to
8.8 percent, the Chartered Institute of Personnel and Development
(CIPD) said. Joblessness is seen peaking at 2.9 million in the
first half of 2013. Industrial production in Japan declined a
seasonally adjusted 2.6 percent on month in November, the Ministry
of Economy, Trade and Industry said in Wednesday's preliminary
reading. The material has been provided by Instaforex Company -
instaforex.com