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The US dollar falls on better German data, but lower GDP estimates are a reminder of the risks

The US dollar is down against all the major currencies as better data out of Germany pushed flows into the risk currency pairs. The German IFO Business Climate index came in at 109.6 versus expectations of 108.8.  This was the highest level since July 2011.  Movement toward a Greek solution and overall better tone in the debt markets of the EU from the ECB’s Long Term Refinancing Operation (LTRO) calmed fears.  The second tranche of the LTRO will be made available next week with demand once again expected to be strong.  Germany’s IFO also published the Current Assessment and Expectations indices which were also better than expectations.  Current Assessment rose to 117.5 vs expectations of 116.5 and the Expectations Index advanced to 102.3 vs. 102.0 expectations.   Although the business climate might be better this month, the EU Commission signalled the expectations for a shrinking EU economy in 2012.  The report shows that they expect the EU combined economies will contract by 0.3% for the year which was lower than the November forecast for 0.5% gain.  Although the Commission expects the German economy and French economies to grow by 0.6% (down from 0.8% in November) and 0.4% (was 0.6%) respectively, they are looking for a -1.3% decline in Italy, a -1% decline in Spain, a -4.4% decline in Greece (was projected as a 2.8% decline in November) and a -3.3% estimated decline in Portugal (was -3% previously).  The declines do not bode well for deficit reduction targets especially for the troubled nations of Greece, Portugal, and Spain.  Raising an eyebrow is the projections in the budget for Greece out to 2020 which are estimating a 2.6% gain in GDP over that period. This rosy outlook was needed to help lower the Debt to GDP ratio to the desired 120.5% target.   The GDP projections for Greece in 2012 highlight the risks inherent in the projections for deficit reductions for the nation.  In the US Initial Claims will be released at 8:30 with expectations for a rise to 355K from 348K last wk.