iFOREX | Dec 28, 2012 04:11AM ET
Hype surrounding the fiscal cliff prompted Consumer Confidence to decline 6.4 points this month. However, other economic data revealed that the labor market continued to improve. Analysts believe that the difference of opinion on how consumers view the present situation highlights the importance of striking a deal to prevent $600 billion in tax hikes and spending cuts from going into effect and pushing the country’s economy into a recession. According to official data, unemployment claims for the week that ended December 22 declined from 362,000 to 350,000. The Conference Board, which measures Consumer Confidence, posted a reading of 65.1 for December, which was well below the anticipated 70.0. Furthermore, New Home Sales climbed 4.4 percent in November as low interest rates continued to support the real estate market. U.S. lawmakers returned from the Christmas vacation and are ready to resume budget talks with just a few days left to come up with a plan. The U.S. Dollar traded lower against the majority of its peers early in the session as investors remain cautiously optimistic in light of the recently announced mixed data. However, the greenback erased losses versus the Euro as Senate Majority Leader, Harry Reid, commented that the U.S. may not be able to prevent the nation from slipping back into a recession. Meanwhile, the Canadian Dollar fell to the lowest in almost four weeks as an impasse in the fiscal cliff negotiations reignited concerns the stalemate may push the country’s biggest trade partner into a recession in 2013.
European Sentiment Up
The Euro rose close to an eight-month high against the U.S. Dollar following the release of French Consumer Confidence, which showed an unexpected improvement, and as Italy reported that Business Sentiment improved. The British Pound advanced versus the greenback even as industry reports indicated that Bank Lending for individuals purchasing homes in the U.K. was less than forecast in November. The Sterling dipper later in the day on speculation U.S. lawmakers won’t agree on a strategy to prevent the fiscal-cliff. The market grew jittery after Senate Majority Leader Reid stated that January 1st is quickly approaching and a deal may not be reached in time to prevent the tax breaks from expiring at the end of 2012.
An already weak Yen extended losses against its counterparts amid speculation the Bank of Japan will implement further monetary stimulus. Earlier in the day, the Finance Minister, Taro Aso, stated that the newly elected Prime Minister asked him to prepare a more aggressive stimulus package than the previous one.
Lastly, the Australian Dollar declined against all of its peers as President Barack Obama and U.S. lawmakers returned form the holiday break and prepared to resume budget talks. The Aussie extended losses versus the greenback and the New Zealand Dollar remained stable as U.S. Treasury Secretary, Timothy Geithner, indicated that he would take the necessary steps to ensure the U.S. doesn’t default as it goes into 2013 while Congress works on a deal to prevent the fiscal cliff from sending the country into a recession. Losses for both currencies were capped by forecasts that China may announce an improvement in the economy.
EUR/USD: Optimism Bolsters Euro
The shared currency rallied versus the U.S. Dollar as confidence in the Euro region encouraged the purchase of Euro assets. The 17-nation currency has managed to stay above $1.3000 since Greece re-structured its debt obligations. Today, the Greek government is looking to restructure its tax system to make it difficult for the nation’s wealthiest to forego paying their dues. Market investors continue to keep an eye on Spain, as many believe the country will request a full bailout some time in the coming year. The Euro declined later in the day after investors sought safe havens on the likelihood U.S. lawmakers may not come to an agreement regarding the budget. On the data front, an index which measures French Household Sentiment revealed a surprising increase from 84 to 86 this month; and Business Climate rose slightly from 88.5 to 88.9.
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