• US CPI rise 0.1% m/m in November, ex-food and energy up 0.1%; year over year, core rises 0.8%
  • Empire State Manufacturing index rises to 10.6 from -11.4
  • US Treasury International Capital data shows slower US inflows of 27.6 bln in Oct from $77.2 bln in September; Chinese Treasuries holdings rise to highest in a year
  • US industrial production rises 0.4% in November; capacity use up to 75.2%, highest in 2-years
  • Portugal steps up reforms ahead of EU summit
  • Ireland approves EU bailout
  • PBOC: China faces uncertainty from concerns that global recovery can’t be sustained
  • Eurogroup’s Juncker: Regrets public discord in the management of euro zone crisis
  • S&P lowers outlook on Flanders after yesterday’s Belgian warning
  • Portuguese banks less reliant on ECB funding but liquidity still tight
  • Mohamed El-Erian: Germany screwed either way…
  • Senate passes tax bill 81-9, sends to House of Representatives
  • US 10-year note closes at 3.535%, highest since May

Sovereign debt jitters from Europe (Spain, Portugal and Belgium back in the spotlight ahead of EU summit) and rising US yields sent the dollar soaring today. EUR/USD has retraced nearly all the ground lost early this week on the way to 1.3500 just 36 hours ago. Traders say the market is more vulnerable on the downside today after yesterday’s short-squeeze. Support is firm between 1.3165 and 85 but largish stops are seen in the 1.3150/60 area.

USD/JPY broke resistance at 84.40 on the rising US yields and reached 84.51 briefly, triggering an 84.50 barrier. Stops remain around the 84.55 area, traders say.

Cable fell sharply today, weighed down by concerns that next month’s VAT hike will send the economy into a stall. A big spike in retail sales this month suggests consumers are stocking up, drawing 2011 spending forward to 2010.It fell as low as 1.5532 against the dollar and 0.8548 against the euro. The euro’s gains faltered later in the session as EUR/USD slumped.

The Swiss franc was the most resilient currency among the majors today as it remains the safe-haven of choice for investors trying to avoid euro zone chaos.

AUD fell back to 0.9845 from near 1.0000 overnight. China’s concerns over the global recovery and general dollar strength contributed to the pullback. We close at 0.9860.