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Dollar Funding Costs Rise to One-Week High in Euro Money Markets

Dollar Funding Costs Rise to One-Week High in Euro Money Markets

The cost for European banks to borrow in dollars rose to the highest in a week, according to a money-markets indicator. A measure of European banks’ reluctance to make unsecured loans to one another held near a three-week low. Lenders increased overnight deposits at the European Central Bank yesterday to the highest in more than a month. Banks placed 249 billion euros ($328 billion) with the Frankfurt-based central bank, the most since Nov. 12, from 225 billion euros on Dec. 14.

Meanwhile, Britain’s top shares rose on Tuesday, recovering after falls in the previous session, on signs of progress in negotiations to avoid a “fiscal cliff” of spending cuts and tax rises that threaten the U.S. economy. Investors became more optimistic that a U.S. budget deal will be struck on Monday night after President Barack Obama made a counter-offer to Republicans that included a major change in position on tax hikes for the wealthy.

In the FX market, GBP has outperformed its European counterpart today, with EUR/GBP down just shy of 10 pips on the session. GBP/USD has climbed from the European morning, with Middle-Eastern demand said to have been behind much of the moves. The moves proceeded through the European morning testing, but not quite reaching, October highs of 1.6218. The gains occur ahead of a raft of events for the UK this week, with the CPI report tomorrow expected to show the pertaining stickiness of inflation, followed by the Bank of England’s minutes on Wednesday. Vanilla option expiries for tomorrow’s NY cut stand at 1.6200, and 0.8180 in EUR/GBP.

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