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USD
The dollar rose on Thursday after a long-anticipated French bond sale revealed what analysts had feared, which was a rise in borrowing costs, with the benchmark 10-year yield averaging 3.29% vs November's 3.19%. Also causing risk appetite to climb swiftly was the news from Hungary that it was in such a bad financial situation, it would be requesting help from the IMF. The Hungarian forint actually fell more than the euro despite the latter's weakness. This sent jitters through the euro-zone as many banks will be exposed to Hungarian debt. Some of the weakness due to the collapsing sentiment was offset, however, by data from the U.S which showed a shock increase in private sector hiring: ADP Employment Change rose to 325k versus 175k expected. This also sets up a better than expected Non-Farm Payroll (NFP) figure tomorrow. A lower than anticipated result in U.S Services ISM, however, meant that the rally in risk during the U.S session petered out after a while.

EUR
The euro continued to slide on Thursday after a combination of disappointing results from a French bond sale and a crisis in Hungary led to a major fall in risk appetite. The long-awaited sale of gallic bonds resulted in a rise in yields on the benchmark 10-year to 3.29% versus the 3.19% recorded in November. It was seen as more indicative of a potential rise in borrowing costs for the whole region. Markets fear that borrowing costs could spiral as a a major season of refinancing for the euro-zone gets under way. Risk was also hit after Hungary asked the IMF for assistance, and a bailout of the country could have major repercussions for many euro-zone banks which have exposure to Hungary. On the data front Producer Prices showed an up-tick versus estimates to 5.3%, whilst Industrial New Orders gained by 1.8% but not as much as the 2.5% expected. Better-than-expected U.S employment data also gave risk a temporary reprieve.

GBP
The pound lost ground against the dollar on Thursday after markets sold-off on increased risk aversion following a worsening of euro-zone debt fears and after it was reported Hungary has sought help for its debts from the IMF. The pound reached a 16-month highs versus the euro on Thursday however as sterling benefited from better than expected data and continued to be viewed by investors as a better bet than its continental cousins. A run of good PMI data over the last few days was rounded off by Services PMI today which showed an above-expectations rise to 54 versus the 51.5 consensus. The data helped offset expectations that the U.K will require further quantitative easing in Q1 to deal with reduced economic growth. Nevertheless few analysts have reversed their negative outlook for the pound based on one good week and these figures will need to continue to perform in order for confidence in the U.K to return.

JPY
The yen rose as a result of increased safe-haven demand following a further erosion in risk appetite caused by rising yields and weakening demand at a French bond auction. Reports that Hungary was in major financial difficulty also depressed sentiment. Yen moves, however, were not as dynamic as previously as a result of investors once again fearing the possibility of intervention after they had dropped their cautious stance following U.S criticism of Japan's solo-interventions. On Thursday a Japanese government official, however, dismissed the idea that Japan would not make more interventions after he reiterated that they were closely monitoring currency movements and would take appropriate action if needed. Japan would also consider: "measures including funding cooperation with the IMF," and would try to aid the euro-zone directly by continuing to buy bonds issued by the euro-zone rescue fund. On the data front, Monetary Base YoY rose at a slower rate of 13.5% versus the 19.5% previous print.


Analysis by : Forex4you India

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