EU session review: Euro drops after Moody's says Spain on review for downgrade; Dollar gains

Data released
09:30     UK     Claimant count (November)    -1,200    -3,200    -5200 (-3700)
09:30     UK     Claimant count rate (November)    4.5%    4.5%    4.5%
09:30     UK     Average earnings (3 months to October) Y/Y    2.2%    2.1%    2.1 (2.0)%
09:30     UK     Average earnings ex bonuses (3 months to October) Y/Y    2.3%    -    2.2%
09:30     UK     ILO Jobless rate (October)    7.9%    -    7.7%
11:00     UK     CBI retail sales volume balance (December)    56%    41%    43%

The euro slumped against the dollar after Moody’s Investors Service said Spain’s debt rating is on review for a possible downgrade.
The shared currency weakened after Moody’s cited Spain’s “vulnerability to funding stress.”
European Union leaders will meet this week amid discord about how to stem a debt crisis that’s caused Greece and Ireland to accept bailouts.
“This morning we had a kneejerk reaction in the wake of the Moody’s comments,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce. “Also, having failed to get up through the $1.35 area there is always a risk of a bit of a pull back. Yield spreads and peripheral concerns going on in the euro zone are going to continue to cap any rallies in euro-dollar.”
Moody’s said Spain’s credit rating may be cut from Aa1 as the government prepares its final bond sale of the year tomorrow amid concern it may follow Greece and Ireland in seeking a bailout.
Spain has to raise 170 billion euros next year, while refinancing needs for its regions total 30 billion euros and for banks around 90 billion euros, Moody’s estimates. It doesn’t see a bailout as “likely.”
The Swiss franc appreciated to a record against the euro. The franc has gained 14% against the common currency this year as investors became more concerned about the ability of European governments to contain the fiscal crisis and prevent a breakup of the 16-member region.
Data published today showed Swiss investor confidence climbed for the first time in four months in December as reviving consumer demand helped counter weaker export growth. The nation’s central bank is expected to leave its benchmark rate at 0.25% tomorrow, as it aims to limit the stronger franc from undermining the nation’s export-led recovery.

EUR/USD fell to session lows on $1.3284 before it recovered to $1.3376.

GBP/USD weakened after weak UK data from $1.5765 to $1.5650.

USD/JPY failed to set above Y84.00 and retreated to Y83.62.

The dollar rose against most major counterparts before data forecast to show growth in U.S. industrial production.
At 1330GMT, US consumer prices are expected to rise 0.2% in November. Core CPI is forecast to rise only 0.1%, as pricing power remains very weak. Also at 1330GMT, the Empire State manufacturing index is forecast to rise to a reading of 5.0 in December after the surprise plunge in November.
US data continues at 1400GMT with the Treasury  International Capital Flows data, while at 1415GMT, US industrial  production is expected to rise 0.4% in November. Capacity utilization is forecast to rise to 75.1%.
The weekly Crude Oil Stocks data comes in at 1530GMT.