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.

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