Dollar Little Changed, Irish News Still Pending

More on Ireland Here

The US dollar is litlte changed against the major currencies, with ther notable exception of sterling, which is slipping below $1.60, depsite the slightly larger than expected rise in the UK CPI and the Australian dollar, which is off more than 0.5% despite RBA minutes that were seen initially as slightly hawkish, keeping the door open to additional rate hikes.

The EU finance ministers meet and the uncertainty may be seriving to help curb euro gains, though the German ZEW survey was stronger than expected, rising to 1.8 from -7.2 in Oct. Official Irish comments seem to be edging toward some kind of support from Europe, but it is not definite. Here is the rub: Ireland has enough money on hand to fund the government until toward the middle of 2011. However the banks continue to bleed. Ireland seems to want the banks to have access to funds, but the various facilities, like the IMF and EFSF are for sovereigns.

The other key issue is whether aid to Ireland will stop the rot. Many investment houses and European countries seem to be saying it will. Color me skeptical. Greece has its own package of 110 bln euros and its bonds remains under pressure. Ireland does not need to borrow from the capital markets for months, and its bond show not real relief. Portugal has funded itself for the rest for the year and its bonds under pressure. I would expect any rally to be quick and short-lived as the real debt dynamics won't change. I suspect that if Ireland gets aid, that the market will turn its sigths on Portugal and Spain.

Note that commodities were hard hit in China and there is talk of trading curbs and efforts to stem speculation in food prices and this may be taking a toll on the so-called commodity currencies--e.g., dollar-bloc, South African rand, and Brazilian real.

Lastly, note that South Korea hiked key rates 25 bp to 2.50%. It is the second hike int he cycle and the the first since July. While the won recouped some recently lost ground, the Kopsi extended its decline into the fourth session, losing on average 1.1% a day. Foreign investors continue to be net buyers of Korean shares.