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Euro stronger on eurozone data, rouble panic

NEW YORK: The euro picked up strength on Tuesday (Dec 16) on data surprises that depicted a eurozone economy holding up better than feared, and Russia’s rouble crisis sent investors into safe havens.

The euro rose back above the US$ 1.25 level, ending at US$ 1.2511, as the eurozone reported a record trade surplus and the ZEW index for German investment sentiment improved.

Meanwhile Markit Economics said its composite purchasing managers index for the 18-country eurozone rose marginally to 51.7 points in December from 51.1 points in November.

The safe-haven yen picked up a little ground on both the dollar and the euro, as the Russian central bank’s sharp rate hike to beat back capital flight only partly stemmed the ruble’s fall.

“Clear fears of a much larger decline as well as the potential capital controls prompted the economy minister of Russia to say the government was not considering currency controls,” said David Rodriguez of DailyFX. “Yet markets seem unconvinced, and interbank liquidity on the dollar-rouble and the ruble as a whole has dropped substantially.”

Dollar traders meanwhile have their eyes on the outcome of the Federal Reserve’s monetary policy meeting on Wednesday. The Fed is expected to adjust its forecasting language to allow a better understanding of its interest-rate hike plans.

A rate hike has been expected for mid-2015, but those plans could be more in flux now that inflation has slowed rather than picked up as the Fed had expected.

“Inflation is slowing and more importantly, inflation expectations have plunged due to lower oil prices,” said Joseph LaVorgna of Deutsche Bank. The meeting statement “will have to acknowledge a relatively benign inflation backdrop, for now anyway,” he said.

The Fed could also signal how much it is taking into consideration rising global financial turmoil in its policy plans.

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