Republicans and
Democrats clash at the cliff

In the last week we have seen extended dollar weakness
against euro strength, this trend continued yesterday, reaching near month lows
for the greenback.

The euro is gaining strength following news Spain that has
applied for a bailout for its banks, whilst a Greek bond buy-back scheme looks
to be building a head of steam that would cut the debt burden on the troubled
nation.

Republicans and
Democrats clash at the cliff

In the last week we have seen extended dollar weakness
against euro strength, this trend continued yesterday, reaching near month lows
for the greenback.

The euro is gaining strength following news Spain that has
applied for a bailout for its banks, whilst a Greek bond buy-back scheme looks
to be building a head of steam that would cut the debt burden on the troubled
nation.

In the US confidence that congress will agree a deal on the looming
fiscal cliff has inspired investors to search for greater returns elsewhere. It
appears that though discussions are advancing, they are also becoming pricklier,
as the disparities between Democrat and Republican stances make themselves
apparent.

Obama’s proposal for higher tax rates was, as expected,
rebuffed by Republican leaders, with John Boehner submitting a counteroffer
which was substantially focused on slashing the president’s prize achievements
thus far, Medicare and social spending.

These political differences will be fierce, and may cause a
standoff. Resultant deviations from the current trend may show short bursts of
dollar strength, however despite these disagreements, eventually congress will
agree a deal.

The overall trend until a solution to the fiscal cliff is
found may be one of dollar weakness. Beyond this point we may see investors
reassess the real state of the global economy and decide to take comfort in the
safe havens, prompting dollar strength against its peers in the New Year.

 

Key Announcements
Today

• 03.30am – AUD – RBA Rate Statement: rates cut from 3.25% to
  3.00%
• 08.00am – EUR – Spanish Unemployment Change: dropped to
  74.3k
• All Day – EUR – ECOFIN Meetings
• 09.30am – GBP – Construction PMI: expected at 50.7