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Euro stabilises and focus shifts to USD

Euro stabilises and focus shifts to USD

The euro found some support after Italian Prime Minister Mario Monti played down market fears over his decision to resign, saying there was no danger of a vacuum ahead of an election in the spring. FX markets are showing some notable resilience following news of Monti’s imminent resignation however prospects of more stimulus from the Federal Reserve pinned down the dollar.

Expectations that the Fed will announce fresh easing steps on Wednesday also lifted high-yielding currencies against the dollar, boosting the Canadian dollar to a two-month high and the New Zealand dollar to a nine-month high.Thus, a lack of meaningful progress in the US ‘fiscal cliff’ negotiations to agree tax and spending policies is creating uncertainty that is proving bearish for the US dollar.

On the FX Markets, GBP/USD settled higher on Monday, supported by safe-haven related flows as market participants reacted to press reports that Italian PM Monti is to resign. The euro is currently trading higher today versus a number of its peers ahead of the Eurogroup meetings, which is expected to last 2 days. Traders are the most confident in the European single currency than they have been in previous trading weeks, as the euro has been a touch oversold recently.

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