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Dollar Firms on Leading Indicators and ECB

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This morning's U.S. leading indicators report was probably one of the most uneventful U.S. releases of the week even though the pace of growth was the strongest in 8 months. Leading indicators rose 1.1 percent due to a pickup in the average workweek, improvement in jobless claims, consumer goods orders, pace of deliveries stock prices and interest rate spreads. The only component that contributed negatively to report was building permits. Recent economic data has been relatively consistent in showing that the U.S. economy is recovering slowly. There are parts of the economy that will take longer to bounce back than others but as long as the trajectory is still upwards, investors have a reason to buy dollars.

ECB Steps it Up With Swap Line for Ireland

Safe haven seekers are also piling back into the U.S. dollar after the 5 notch downgrade of Ireland's sovereign debt rating by Moody's reminded investors that a strong core is not enough when the limbs are becoming debilitated. Germany reported record levels of business confidence in the month December, but the EUR/USD did not manage to hold onto its gains as sovereign debt troubles continue to upset investors. Ireland may have received a bailout by the EU and IMF but the lower the credit rating, the higher the borrowing cost and the more difficult it will be for the country to meet their funding requirements.

The recent increase in uncertainty for the Eurozone has forced the European Central Bank to be step up their efforts to prevent a full blown crisis of confidence that spills over into Spain or Portugal. To stem against a liquidity crisis, the ECB announced this morning that they have established a temporary swap line with the Bank of England to provide Ireland with British pounds if necessary. The ECB also bought Irish bonds in a bid to stabilize the bond market after Moody's downgrade.

Rating agencies have been aggressively cutting the outlook or the actual credit rating of countries across the Eurozone and their crusade is not over. We expect Standard & Poor's to be the next rating agency to downgrade Ireland. They currently rate Ireland 2 notches above Fitch and Moody's but have the country on watch for a downgrade. Unfortunately the sovereign debt crisis will be one that lasts well into the New Year, making the euro unattractive to many investors.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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