Rare earth case may be to blame for euro weakness

With all indicators pointing to a renewed interest in risk assets overnight as equity futures rose, high-beta currencies are up, and oil and commodity currencies gaining, why was the euro down?

The reason appears to lie less in what’s happening with the euro zone debt crisis and more with the European Union joining the United States and Japan in their rare earth case against China at the WTO.

“China has hinted that it would be more forthcoming on providing aid to the euro zone to deal with the sovereign crisis if the Europeans made political and trade concessions,” said Steven Englander, currency strategist at Citigroup.

While the Europeans have made clear their interest in having the Chinese provide aid and support for their bailout plans, but joining the rare earth’s case makes it less likely that China will be upping its participation in the bailout any time soon.

— FP Trading Desk

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