Data/Event Risks
- USD: Will be watching equity markets closely, with strong start adding to weaker dollar tone. Dollar could be more sensitive to data now that fiscal concerns have subsided.
- GBP: PMI manufacturing data
Idea of the Day
The deal put together in the US yesterday is being billed as averting the ‘fiscal cliff’, but this is somewhat misleading. Given that these measures were due to start taking effect today (the first working day of the year), then the sense of relief is understandable, with equity markets higher, the dollar and the yen weaker. Yesterday’s deal averts many of the tax increases and benefit cuts that were most visible to Americans. But there are around USD 100bn of spending cuts that have been delayed by two months, and the negotiations on the debt ceiling must also be concluded over this time-frame if the US is to avoid defaulting on its debt obligations. Furthermore, Republicans are poised to use the debt ceiling-expiry as a negotiating tool on other spending measures. So, whilst the initial relief is welcome and understandable, there’s still a fair amount of work to be done in the coming few weeks and this could ensure there remains plenty of two-way traffic on the dollar.
Latest FX News
- JPY: Weakening by around 0.6% vs. the USD on a general ‘risk-on’ move in the wake of the US fiscal cliff deal.
- USD: Dollar index is around 0.4% lower on the back of the fiscal cliff deal.
- EUR: Stopping just shy of the December high of 1.3308 in the EUR/USD rally seen during the Asia session.
- AUD: Moving higher on the general ‘risk-on’ move, but holding below the 1.05 level for now and only just outperforming the euro.
- GBP: PMI manufacturing data could give the pound a lift if we see move back above 50.0, a level it has not been above since April of last year.
