Euro hopes fanned by Commissioner's revamp pep talk

European session pressure on the dollar came to a brisk halt in early
New York trading with the euro, pound and yen each surrendering gains
to the greenback in rapid succession. Investors were encouraged over
the prospects for a Portuguese auction following comments penned by EU
Monetary Affairs Commissioner Ollie Rehn who urged cohorts to soon
consider reinforcing the scope of the Eurozone?s current and emergency
backstops and enhancing the degree of flexibility of the measures.

*U.S. Dollar -* Earlier losses for the dollar have rapidly given way
as investors digest the words of Commissioner Rehn. ?We need to review
all options for the size and scope of our financial backstops,? wrote
Rehn in the Financial Times. But the obstacles to an agreement remain
sizeable not least because the decision to raise the lending ceiling
of the ?440 billion emergency fund would set off a new round of
required parliamentary approval. Given that path would neither be
smooth nor swift, the dollar has overturned an earlier wave of
selling. The dollar index is flat at 80.75.

*Euro -* The euro rallied to its highest since last Thursday in
European trading reaching $1.3045 as French and German officials
praised the efforts of the Portuguese government in taking tough
measures to rein in its public spending and reducing its budget
deficit. French Finance Minister Christine Lagarde told domestic
television that Portugal was making more progress than it had
committed to, urging its leaders to continue since ?structural reforms
are necessary.? German Chancellor Merkel told reporters that Portugal
had taken ?very important measures? and appears to be taking them
seriously. The euro was also inspired by hopes that officials will
next week discuss the effective lending capacity of the Eurozone's
rescue fund. When the EU established the ?440 billion European
Financial Stability Fund in May last year, in order to maintain a
top-notch credit rating the fund was restricted to lending around ?250
billion. Hopes that the EU will discuss enhancing its flexibility
helped soothe worries beyond a request for assistance beyond a nation
the size of Portugal.

Such earlier optimism appears to have done its usual trick and was
enough to drive the shorts out of the market triggering stops as they
hit the exits. The euro has subsequently eased to an unchanged value
of $1.2975.

*Japanese yen -* The yen strengthened in Asia against the dollar
reaching ¥82.98 following a thirteenth straight decline in bank
lending.

Bank of Japan data showed outstanding bank loans fell by 1.9% in
December following a 2.0% decline in November. Bankers face a hard
time finding companies wanting to borrow to fund investments meaning
the central bank will maintain its ultra-low borrowing costs for as
far as the eye can see. The current account surplus in the year
through November also declined according to a separate report making
for the first year-on-year decline in three months. As equity prices
remained elevated around the world for a second day demand for the yen
fell allowing the dollar to turn losses into gains on the day reaching
¥83.32.

*British pound -* The pound fell from its highest in a month following
the largest trade deficit since 1980 when records began. Having
touched $1.5681 ahead of the £8.7 billion shortfall in trade the
pound has fallen back to an unchanged reading of $1.5600. The November
trade report was expected to narrow to £8.3 billion following a
reading of £8.6 billion in October. The pound also gave up small
gains against the euro and trades slightly weaker per euro at 83.22
pence. The Bank of England starts a two-day meeting on Wednesday to
discuss the health of the economy against a backdrop of stubborn
inflation.

*Aussie dollar -* Reserve Bank board member Warwick McKibbin told the
Sydney Morning Herald that he expects growth to be pared by as much as
1% as a result of the floods hitting Queensland. The rising waters are
expected to continue for two more days before levels subside.

Australia?s dollar took another pounding overnight and reached a
one-month low at 98.04 U.S. cents. However, broader appetite for risk
building on strengthening demand for equities around the world on
Tuesday helped the Aussie unit reverse course in midweek trading
lifting it to 99.23 cents in European trading. The local dollar was
also helped by housing data released earlier. As equity prices
gathered steam demand for the Japanese yen also waned allowing the
Aussie to rally to ¥82.33.

*Canadian dollar -* Swollen by growing confidence in the world
recovery and rising commodity prices the Canadian currency today
traded up to $1.0136 the strongest since May 2008. The Canadian unit
is also benefitting at the expense of the Aussie dollar as the
Queensland floods take their toll. The Aussie has shed five cents
recently against its commodity-sensitive counterpart reaching a
four-month low at 97.05 Canadian cents this morning.
Source: Fxstreet.com