Morning Currency Wrap for Wednesday November 24, 2010

It's the Debt Stupid, Nothing Else Matters - The Euro fell to a two month low against the USD as the uncertainty surrounding Ireland is causing contagion fear to spread to other euro zone countries. Irish opposition parties are threatening to block the passage of a budget that needs to be in place before Ireland is able to tap the EU/IMF fund. Also, unions are banding together to protest proposed cuts to services. If that wasn't enough, S&P cut Ireland's debt by two notches and warned that it may cut it again if Ireland's cost cutting plan is not effective. The reduction leaves its long-term grade five steps above Greece, which has the highest junk, or high-risk, grade. This uncertainty is causing fears to spread to Portugal and Spain - Credit-default swaps insuring Portuguese government debt climbed 13.5 basis points to 500.5 while those for Spain increased 9 basis points to 310, both all-time highs. Bond spreads between the Ireland’s 10-year debt and German bunds has widened  by 21 basis points to 607 basis points. Just to prove that nothing else matters right now, look at Germany's IFO report - it showed that confidence among German business in November hit its highest level since reunification in 1990 but yet that did nothing for the Euro. Meanwhile, the GBP rose to its strongest level in nine weeks against the Euro as data confirmed the U.K. economy grew at twice the rate forecast. Let's not get to excited here, the original estimate was only 0.4% for Q3 but with the backdrop of Ireland this number now looks rosy. In Asia, the Yen sold off against the USD, after North and South Korea exchanged artillery fire at a South Korean island near their western border yesterday. But with no new hostilities reported the Yen found a firm level. In the U.S. today, with a market holiday tomorrow for U.S. Thanksgiving, all data releases for the rest of the week will be released today. In Canada, the CAD caught a bid and moved higher across the board as it looked better compared to problems around the world. The CAD also benefited from firmer commodity prices and recovering global stock markets. The CAD also received a boost on news that the world largest manager of bond funds, Pimco, sees value in Canada's debt betting that Canada’s key interest rate will diverge from the U.S. rate.