Euro Pressured by Austrian Banking Concerns
The euro reached a two and a half month low against the US dollar as stocks fell and investors expressed concerns about the European banking sector. Lingering concerns about the fiscal health of Greece were not allayed after Greek Prime Minister George Papandreou announced spending cuts. Earlier Greece’s rating had been cut from A- to BBB+ by Moody’s. The Austrian press reported that the country’s largest cooperative bank, Oesterreichische Volksbanken had been put on a watchlist by the Austrian central bank’s financial market regulators. A spokesman for the bank said that the bank is not at risk of nationalization and that the press reports were inaccurate. Austria recently nationalized Hypo Alpe-Adria Bank International AG sparking investor concerns. On Monday the surprise announcement that Abu Dhabi would provide a $10 billion dollar bailout for Dubai Inc. eased some concerns about European banks, many of which are heavily exposed to Dubai debt. Dubai stocks .DFMGI gained as much as 3.4% after the announcement.
Improvement in US Economic Data
The US dollar hit a two month high against the euro as data showed that US industrial production gained and U.S. producer prices rose 1.8% in November. The data comes on the heels of better than expected US non farm payrolls figures which pushed the dollar higher. Camilla Sutton of Bank of Nova Scotia in Toronto stated, “What we are seeing recently is the improvement in some important U.S. data and rising sovereign risk in the euro zone. Both provide a bid tone to the U.S. dollar.” Michael Woolfolk of BNY Mellon in New York added, “We’ve had a string of very good U.S. data releases compared to Europe, and today’s data suggests inflation is picking up again, so the whisper out there is that the Fed will hike rates sooner than expected.”
Eyes on Fed Meeting
All eyes remain on the ongoing Federal Reserve meeting taking place on Tuesday and Wednesday. Investors will be watching closely for signs of early withdrawal of stimulus programs which may trigger a much wanted rate increase by the Fed.
