Hats on… There’s a fiscal cliff a-coming… Currency report Dec 10By james tweed • Dec 10th, 2012 • Category: Currency
Significant items this week:
Tues 11 Dec US – Trade Balance
EMU – German Economic sentiment survey
Wed 12th Dec EMU – Industrial Production, German CPI
UK – Unemployment
US – FOMC Interest rate and QE decisions
Thurs 13th Dec EMU – Summit meeting
US – Retails Sales
Fri 14th Dec EMU – CPI
US – CPI, Industrial Production
Thank you for downloading the foreign exchange market report podcast for December 10th from Coracle Online and Crossbar fx.
The gridlock in Washington regarding the so called ‘fiscal cliff’ is taking its toll on riskier assets, and as such the US Dollar strengthened across the board last week. If, from a US investor’s point of view, all is well with the economy then they diversify and buy riskier assets elsewhere. But when headlines announcing economic doom and recession fly about, investors get nervous and sell their risky assets and repatriate to the Dollar. Market commentators may also tell you the Dollar strengthened because the non-farm payrolls were better than expected, coming in at 146,000 – well above the 86,000 forecast. But actually these positive numbers make investors feel confident about the US economy and as such the strength of their currency, and off they go looking for riskier assets… Consumer confidence data at a 4 month low keeps the same investors confused. So while you have good data and bad data, seemingly suggesting opposite states for the economy, and the politicians arguing about how to avoid the fiscal cliff, you get uncertainty. And that usually leads to Dollar strength as everyone sits on their hands waiting for more data one way or the other. It’s all rather confusing!
Meanwhile, in Euroland the ECB cut growth forecasts for 2013, as did the German central bank, and the ratings agencies downgraded the Greek economy to ‘selective default’, but the Euro hardly moved until Monday morning when the Italian Prime Minister said he was resigning, stating that he felt he had lost support. His predecessor, Berlusconi announced he will have another go at becoming PM, and will reverse Mario Monti’s budget rigor. Vote catching headlines for sure, but a disaster for the economy and no doubt Draghi and Merkel are already wondering who is going to pay for it.
The ECB left interest rates as they were, but did announce there were disagreements and this has led many to speculate that an interest rate cut could be on the cards in 2013. In the UK the Chancellor announced in his Autumn statement that its going to take longer to get the countries debt under control, no surprise there then. Interest rates were also left on hold.
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