Broker's Notes: Euro declines to new two month low against the US dollar

Euro
The euro extended losses to fall to fresh two-month lows against the U.S. dollar on Wednesday as euro zone's debt problems and tension in Korea overshadowed upbeat German data. Peripheral government bond yields spreads continued to widen while media reports that North Korea has said the South's action were driving the peninsula to the brink of war were driving investors to seek safe-haven currencies. The euro fell to as low as $1.3284, matching its Sept 24 low. The euro was also down 0.7 percent against the yen at 110.36 yen. The dollar index rose to its highest since Sept. 24, rising to 79.995.

Indian rupee
The Indian rupee slipped to a fresh two-month low on Wednesday amid an equity market sell-off in late trade on reports of a federal probe into loans issued by financial institutions, while broad dollar gains also weighed. India's federal investigating agency said on Wednesday it had arrested at least eight officials from banks and financial institutions on charges of taking bribes to grant large corporate loans, the country's third big corruption scandal in the past few months. Shares dropped 1.2 percent to their lowest close in 10 weeks, as reports pointed to a federal probe into loans issued by some financials, adding to investor nervousness in a country already grappling with a telecom license scandal. However, foreign portfolio investors have snapped up a record $28.5 billion worth of Indian equities so far this year, in addition to last year's $17.5 billion.

Gold
Gold steadied on Wednesday as mounting concern about the risk that Ireland's debt crisis could spread to other euro zone economies pushed the euro price of bullion to its highest level since June. A deadly exchange of military fire between North and South Korea on Tuesday has further unsettled investors, putting Asian stocks under pressure and encouraging a sweep into perceived safe havens such as gold, government bonds and the Swiss franc. The dollar hit two-month highs against a basket of currencies providing a head wind for gold, which usually weakens in response to dollar strength. Bullion dealers in Singapore noted selling of gold bars and scraps from consumers in Indonesia and Thailand, but China saw buying on dips related to the tension in Korea. Gold's negative correlation to the dollar reached its weakest since mid-September as investors ditched the euro and other risk-related assets such as stocks and corporate debt.

Oil
Oil edged higher above $81 a barrel on Wednesday, rising from a near week's low in the previous session on expectations of falling inventories in top consumer the United States. Weekly U.S. government data on Wednesday is expected to show a drop in crude oil inventories, although industry group the American Petroleum Institute reported on Tuesday that crude stocks rose. Oil has fallen about 8 percent since reaching a 2010 high of $88.63 on Nov. 11. Commodities have been hit by a stronger dollar and rising risk aversion, reflecting euro zone debt worries and fears of fresh clashes on the Korean Peninsula. Investors are awaiting data from the U.S. Energy Information Administration (EIA) due at 1530 GMT, which is expected to indicate higher oil demand.

Sterling
Sterling rose against a broadly weaker euro on Wednesday on concerns about Ireland and other euro zone peripherals' debt, while the pound recovered after hitting a near four-week low versus the dollar the previous day. Official data confirmed Britain's economy grew 0.8 pct in the third quarter of this year, boosted by net trade which made its biggest contribution to growth in two years. Compared with the same period a year ago, the economy expanded by 2.8 percent, also unchanged from a preliminary reading. The pound would have been vulnerable had the figures been revised down. The initial reading was twice as much as had been expected, and had contributed to a pullback in expectations for more monetary easing by the Bank of England.

Source: Richcomm Global Services, DMCC, Dubai