Forexpros – The dollar firmed in Asian trading Tuesday as investors ran to the greenback for safety in wake of a warning flag raised by Moody’s Investors Service that a recent E.U. summit failed to handle Europe’s immediate crisis, which pummeled the euro.
In Europe on Friday, 26 eurozone countries agreed on the need for greater economic integration while allocating EUR200 billion to the International Monetary Fund to help firewall the crisis to Greece, Italy, Spain and other periphery eurozone countries.
Hopes that a EUR500 billion euro European Stability Mechanism will help ease the crisis alongside an existing but temporary EUR440 billion European Financial Stability Facility also boosted the euro in recent sessions, although old fears that such funds are not large enough for everyone still linger.
The honeymoon was short lived when Moody’s said the summit wasn’t enough to change its view that downgrades were possible across the currency zone, sparking massive equities and currency sales worldwide shortly afterwards.
“The communiqu? issued by European policymakers after the recent euro area summit offers few new measures and therefore does not change our analysis of the rising threat to the cohesion of the euro area and the further shocks to which it and the wider E.U. remain prone,” Moody’s Investors Service said in a statement.
“As we announced in November, unless credit market conditions stabilize in the near future, our ratings of all EU sovereigns will need to be revisited. The communiqu? does not change that view, and we continue to expect to complete such a repositioning during the first quarter of 2012.”
During Tuesday trading, the greenback was up against the euro, with EUR/USD down 0.06% and trading at 1.3180.
Gold, a traditional hedge against a weakening dollar, was down as well.
On the Comex division of the New York Mercantile Exchange, gold futures for February delivery traded at USD1,657.55 a troy ounce during Asian trading, down 0.64%
The greenback, however, was weaker against the pound, with Cable rising 0.05% to hit 1.5592.
Meanwhile, the greenback was flat against the yen, with USD/JPY trading at 77.94, and up against the Swiss franc, with USD/CHF trading up 0.07% at 0.9378.
The greenback was mixed against currencies in Canada, Australia and New Zealand, with USD/CAD dipping 0.01% to 1.0271, AUD/USD sliding 0.13% to 1.0060 and NZD/USD slipping 0.06% to hit 0.7627.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.02% at 80.25.
Looking ahead, U.S. economic news will rule the day.
Later on Tuesday, the Federal Reserve will announce it latest decision on interest rates.
The Fed Funds rate currently stands at 0.25%, a very low and expansionary figure and is expected to stay there, but language suggesting further monetary easing may be on the way could weaken the greenback.
Furthermore, the U.S. Census Bureau is scheduled to release its latest retail sales figures, which could provide a glimpse into the health of consumer spending, which accounts for 70% of total U.S. economic output.
U.S. core retail sales are expected to rise 0.5% in November, and anything softer could spell trouble for the greenback.
Investors will glance over to Europe from time to time, as consumer inflation data is due out of France and the U.K.
In Germany, the Zentrum f?r Europ?ische Wirtschaftsforschung (ZEW) Economic Sentiment Index will publish on Tuesday as well.
The index, which gauges the economic sentiment in Europe’s economic backbone, should come in at -55.8 compared to a previous -55.2 reading.
The reading is the product of a survey of German institutional investors and analysts, and a reading below zero reflects pessimism, but any surprises for the worse could mean even more trouble for the euro.
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