The fiscal cliff deal leaves all parties involved unimpressed
Yesterday market confidence caused the dollar to drop heavily on news that a deal on the fiscal cliff had been reached, however as investors digested the details it gradually became apparent that it was far from the solution that had been needed.
The Democrats felt not enough had been done to increase tax revenue, insisting a higher rate above $250,000 was necessary, whilst the Republicans baulked at the absence of spending cuts from the deal.
Overall it seems as if neither party is satisfied, despite the ordeal lasting months. Going forward both will need to reconvene and revisit the issues once again having merely kicked the can down the road to buy themselves more time. By February, when the next talks are scheduled, the atmosphere will be more hostile and intense as both sides dig their heels in having been so dismayed with the respective terms from this deal.
Reflecting on the poor tangible progress from this agreement and surveying the future battles sure to ensue, investor confidence disappeared over the course of the day as most of the sharp dollar losses were recouped. Still considered a good level, acting sooner rather than later could benefit dollar buyers as negative sentiment about the fiscal cliff deal may continue to weigh on the markets, an attitude which could reflect on the riskier euro too, weakening it against sterling today.
Key Announcements Today:
- 08.00am – EUR – Spanish Unemployment Change: dropped sharply by 59.1k
- 08.55am – EUR – German Unemployment Change: increase by less than expected, 3k
- 09.30am – GBP – Construction PMI: expected to remain around 49.6
- 09.30am – GBP – BOE Credit Conditions
- 13.15pm – USD – Non-Farm Employment Change: expected to increase by 134k
- 13.30pm – USD – Unemployment Claims: expected slightly up at 356k
- 19.00pm – USD – FOMC Meeting Minutes