Euro Pressured by Austrian Banking Concerns

The US dollar hit a two month high helped by recent employment and industrial production data. A recent report showed that US industrial production rose in November at a higher rate than had been forecast by economists. The euro was pressured by Austrian banking concerns after the Austria nationalized Hypo Alpe-Adria Bank International AG. An Austrian press report said that the nation’s central bank and its financial market regulator have put the country’s largest cooperative bank, Oesterreichische Volksbanken, on a watchlist. A spokesman said that the bank is not at risk of nationalization and the press report is inaccurate. Lingering concerns about the fiscal health of Greece have also pressured the euro. After having its rating downgraded Greek Prime Minister George Papandreou’ announced spending cuts to ease concerns.

Dubai Bailout Eases Fears

Monday’s announcement of a $10 billion dollar bailout for Dubai eased some banking concerns. Dubai stocks rose 3.4% after the bailout announcement. Abu Dhabi’s Dubai bailout helped to prevent a default on a $4.1 billion bond issued by property firm Nakheel. All this translated into a two month high for the dollar against most major currencies. Michael Woolfolk of BNY Mellon in New York said, “We’ve had a string of very good U.S. data releases compared to Europe, and today’s data suggests inflation is picking up again, so the whisper out there is that the Fed will hike rates sooner than expected.”

Pound Reverses Decline

The pound reversed its decline against the euro and yen as UK economic data showed that inflation rose to its fastest pace in sic months. Some analysts say this weakens the ECB’s argument for keeping rates at record lows of 0.5%. Last week Chancellor of the Exchequer Alistair Darling said that the UK inflation rate would rise about 3% in 2010. The pound gained 0.5% against the euro trading at 89.44 pence per euro. Against the yen the pound  rose to 146.03 yen and traded at $1.6236 against the greenback.