Forex: Wednesday’s review

Yesterday the euro dropped against the yen to the lowest level since 2001 as the European Central Bank’s balance sheet soared to a record after it lent regional banks more money last week to keep credit flowing.

The 17-nation currency fell against the dollar to the least since January as concern increased that the region’s sovereign- debt crisis will curb growth, even as rates fell at an Italian bill sale. The dollar gained as stocks dropped, boosting demand for haven assets. The ECB’s balance sheet expanded to a record 2.73 trillion euros ($3.55 trillion). Lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based ECB said in a statement yesterday. The balance sheet increased by 239 billion euros in the latest period and was 553 billion euros more than three months ago.

Italy sold 9 billion euros of 179-day bills at a rate of 3.251 percent, down from 6.504 percent at the previous auction of similar-maturity debt on Nov. 25. The Treasury also sold 1.7 billion euros of zero-coupon bonds due in September 2013 at a yield of 4.85 percent, versus 7.81 percent on Nov. 25. The nation will auction as much as 8.5 billion euros of debt due between 2014 and 2022 today. Italian 10-year bond yields pared a drop after falling as much as 25 basis points to 6.75 percent. They traded at 6.94 percent, compared with more than 7 percent reached, the level that spurred Greece, Ireland and Portugal to seek bailouts.

EUR/USD: yesterday the pair has fallen to a figure.

GBP/USD: yesterday the pair has decreased on two figures.

USD/JPY: yesterday the pair has showed a new month’s low, however was restored later.

Thursday sees the continuing release of the German state CPIs, which lead up to the release of the November flash HICP. Core-European

data also includes ECB M3 data at 0900GMT. US data starts at 1330GMT when initial jobless claims are expected to have fallen 11,000 to 375,000 in the December 24 pre-holiday week. US data continues with the 1500GMT release of NAR Pending Home Sales and also the Kansas City Fed Production Index. The weekly EIA crude oil stocks data is due at 1100GMT, while late US data includes the 2130GMT release of US money supply data.