Fiscal Cliff deal causes dollar weakness
An eventful start to the New Year has seen the dollar drop more than a cent overnight as the US congress came to an agreement over action to avert the fiscal cliff.
After months of expectant build up, the senate finally reached a deal in the early hours of 2013. The progress shown was the first time senate leaders had found a compromise, but all would have been fruitless had congress not voted in favour of the bill last night.
The solution, seen as a victory for Obama against his republican counterparts, moved the US away from the dangers of the cliff, which could have plunged the economy into a recession. Resultantly risk appetite has been reignited; early gains this morning have been consolidated as the markets digest the news.
Despite the deal, the fiscal cliff has not been solved. The agreement protects the majority of Americans from higher taxes; however the nation’s spending still remains high. Many of the main issues have been delayed until the end of February, when the topic will be revisited, probably with more hostility towards Obama’s propensity towards social spending.
For now though the dollar is weak as investor confidence has received a strong boost, this represents an excellent time to buy dollars as we sit at an 16-month high against the dollar following the overnight movements.
Key Announcements Today
- All Day – EUR – German Prelim CPI: expected at 0.7%
- 08.15am – EUR – Spanish Manufacturing PMI: returned at 44.6
- 08.45am – EUR – Italian Manufacturing PMI: returned slightly up at 46.7
- 09.00am – EUR – Final Manufacturing PMI: returned at 46.1
- 09.30am – GBP – Manufacturing PMI: returned well up at 51.4
- 15.00pm – USD – ISM Manufacturing PMI: expected slightly up at 50.2