iFOREX | Nov 20, 2012 04:32AM ET
The U.S. dollar weakened against all of its counterparts on speculation President Barack Obama and lawmakers will come to a consensus on how to handle the country’s budget in order to avert the so-called fiscal cliff. Optimism did wonders for the market as it increased risk appetite and dampened demand for refuge currencies.
Reports indicating that the E.U. is ready to unlock the bailout mechanism also boosted sentiment, especially as it’s rumored that Greece may receive the next tranche of international aid on December 5th. However, it’s not clear if the International Monetary Fund and the region’s leaders have resolved their differences on how to help Greece reduce its debt. On the data front, the National Association of U.S. Realtors stated that sales of Existing Homes increased by 2.1 percent to a seasonally adjusted 4.79 million units last month.
The Canadian dollar rallied against its U.S. peer after the International Monetary Fund suggested it may classify the Canadian and Australian dollars as reserve monetary units. The loonie advanced versus most of the majors as global stocks and commodities gained on optimism the U.S. may avert the fiscal cliff and therefore a recession as well.
The euro climbed against the U.S. dollar as reports indicated that Greece will obtain the next bailout payment in the early part of December. The region’s Finance Ministers will meet in Brussels today where they’ll discuss the payment of 44 billion euros to Greece. However, concerns over the crisis in the eurozone persisted as Germany’s central bank issued a statement saying the country’s economy is contracting as a result of the ongoing debt crisis.
The British pound rose against the U.S. dollar as risk appetite improved on optimism that U.S. President Barack Obama and key lawmakers will find a way to avert the fiscal cliff. The sterling had declined earlier as market investors look ahead to the publication of the Bank of England’s Policy Meeting Minutes.
The yen plunged against all of the majors as Kyodo News reported that the head of the Liberal Democratic Party, Shinzo Abe, will select a new governor for the Bank of Japan, which will probably be someone who supports adhering to inflation targets.
Lastly, the Australian dollar rose against most of its peers after President Obama indicated that he believes the U.S. will be able to avert the fiscal cliff, a factor that bolstered global stocks and the demand for high-yield assets. The aussie was also supported against the yen as Japan’s central bank readies to meet in order to discuss further monetary stimulus. The New Zealand dollar continued its advance as economic releases revealed that the Service Industry grew at the quickest pace in close to five years.
EUR/USD- E.U. May Unlock Bailout Mechanism
The markets are still jittery as the euro-group prepares to meet today to discuss unlocking the bailout mechanism and providing Greece with 44 billion euros in aid. The decision to pay Greece the next installment has been delayed as the Euro Group and the IMF have not agreed on how to ensure Greece reduces the debt to a manageable level. Analysts believe the euro will trade mixed in the days to come, especially as they foresee no positive outcome from the meeting since the IMF is still advocating for a debt haircut.
The sterling is also likely to remain sensitive to news out of the Euro region, especially since investors have considered it an alternative to buying euro assets. On the data front, Rightmove PIC revealed that Home Price increased for a third month in November, as overseas buyers continued to seek the most prestigious neighborhoods of London. Luxury Home values are currently 16 percent higher than in March 2008 when they reached their peak.
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