Irish Creadibitly in Question and Good Numbers from the Us Dollar rallies

The EUR/USD came under fresh selling pressure today in early European trade after the Swiss National Bank confirmed that it will longer accept certain Irish government bonds as collateral for its repo operations. A spokesman for the SNB told Dow Jones that only securities “that fulfill stringent requirements with respect to credit rating are accepted by the National Bank .”

This is the first instance of a central bank rejecting the credit of an EU member and suggests that the sovereign debt crisis  in the EZ may have entered an new phase of volatility with credit market participants becoming even more discriminatory in their attitude.  The SNB move may also put fresh pressure on the EMU to  begin issuing a Eurobond for the region as the current arrangement of having a single currency, but multiple sovereign debt credits shows the inherent conflict of the present system.

By FX360

Wilkinson said he expects the euro to fall below $1.30 by the end of the month.

"While core European countries are showing solid growth, there is a lot of baggage attached to that growth and it has the potential to explode on sovereign debt woes," he said. "The rise in Treasury yields, meanwhile, should prove to be a tail wind for the dollar."

U.S. Treasuries' prices plunged. For details, see [ID:nN05285548]. Rising yields tend to support the dollar as they reflect stronger growth. They also enhance the attractiveness of some dollar-denominated assets to investors.

A separate report showing the U.S services sector expanded as well in December also lifted the dollar.

For a wrapup of U.S. data click on [ID:nN05276072].

"If, in fact, employment is kicking in, then that would set the tone for self-sustained growth, underpin interest rates and very much underpin the dollar," said Bob Sinche, global head of FX strategy at RBS Global Banking and Markets in Stamford, Connecticut.

Analysts said the private sector employment report bodes well for Friday's U.S. nonfarm payrolls number, which is expected to show gains of 175,000 overall jobs last month. [ID:nN05280692]

"We're definitely back to a 'buy dollar' mentality and the market is looking to take out key support levels for the euro," said Dean Popplewell, chief currency strategist at OANDA in Toronto.

One of those support levels is the 200-day moving average just below $1.31, which has staunchly supported the euro over the last two weeks and its breach could signal further selling. (Additional reporting by Gertrude Chavez-Dreyfuss; Editing by Kenneth Barry)