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European Session – Dollar rises on stronger US retail sales, euro falls as LTRO disappoints

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The European Central Bank’s cheap 4-year loans to Eurozone banks – called TLTRO – had a slightly lower than expected allotment of 130 billion euros, increasing speculation that the Bank would embark on a broader asset purchase program. The ECB allotted banks 129.8 billion euros of LTROs as part of a package of stimulus measures to add around 1 trillion euros to its balance sheet – in an effort to stave off deflation risk in the Eurozone.

The euro fell under pressure against the dollar after the announcement before briefly bouncing and then falling back down again into the US session, last trading at 1.2376 by 15:00 GMT. On Wednesday the euro hit a high of 1.2494. Overall the combination of low growth in the Eurozone and falling inflation, would likely keep the euro under pressure through to the end of the year.

Sterling was lower today after the Bank of England announced some changes to the way it provides information about its monetary policy decisions. These changes include new transparency measures, such as publishing minutes of BoE policy meetings alongside interest rate announcements as from August 2015 and shifting to 8‐meetings per year by 2016. The upcoming risks for the pound will be next week’s CPI release and the minutes.

The Swiss franc was in focus today as the Swiss National Bank announced it policy decision. It left rates at 0% –0.25%, surprising markets that expected the Bank to move towards negative interest rates. As a result the franc strengthened against the euro and the dollar. The euro fell to its lowest in more than a week against the franc  to 1.2009. After falling briefly, the dollar/franc however rebounded to 0.9698 from 0.9634 after some upbeat US data.

The US reported the biggest gain in retail sales in 8 months. Data showed retail sales jumped 0.7% in November from 0.5% in October while retail sales excluding autos increased 0.5% from 0.4%. Meanwhile, separate data showed initial jobless claims fell by 3,000 to a seasonally adjusted 294,000 for the week ending December 6. The forecast was for claims to fall to 295,000. The better-than-expected data from the US today helped the dollar rebound after making some losses earlier in the past two days.

Against the yen, the dollar rose to 119.18 moving off a low of 117.43 hit earlier in the day. The key risk for the dollar/yen pair will be Sunday’s elections in Japan. Following this, next week’s FOMC statement will be the highlight.

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