Dollar Mixed, European Shares Inching Higher

NEW YORK (BBH FX Strategy) -- The U.S. dollar is mixed against the majors and emerging markets this morning in very narrow ranges as thin market conditions prevail with markets in the UK, Canada, Hong Kong, Australia, and New Zealand still closed for holiday.

The euro is modestly higher after bank deposits with the European Central Bank rose to 411 billion euros on Dec. 26, compared to just 265 billion euros ahead of last week's three-year tender. This suggests that so far banks are parking most of the additional liquidity with the central bank, rather than extending the funds as new loans to businesses and consumers.

So far today, the dollar bloc currencies are the weakest against the dollar, with losses ranging from 0.05% to 0.07%. European currencies are mostly higher against the greenback, with SEK leading the gains, up nearly 0.4%. USD-JPY, in fact, managed to carve out a six-day low of 77.85, which exactly matched the prevailing position of the pair's 20-day moving average, the medium level that has been seen over the last couple of months.

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Equity markets are mixed, with European shares advancing for a third day while Asian shares were mostly lower. The EuroStoxx 600 is marginally higher, up 0.15%, led by gains in basic material. Bank shares are marginally lower, down 0.4%. Earlier in Asia, most of the markets closed with moderate losses after the release of Bank of Japan minutes from the Nov. 30 meeting, emphasizing fallout from the eurozone crisis. The central bank sees this as likely to continue for a protracted period.

Bond markets are mostly higher, with bund futures higher and eurozone spreads widening, despite higher equity markets. Eurogroup head Juncker said new budget rules will have a "deterring" effect and repeated that we are experiencing not a crisis of the euro, but one of individual member states.

Meanwhile, Germany denied reports that it will cut its growth forecast for this year from the 1.0% expected previously, while a member of the government's council of economic advisers said the eurozone's largest economy will escape a recession with modest 0.5% growth this year. The calendar was empty today, but released over the holidays French unemployment rose to a 12-year high in November.