USD – The dollar is higher this morning against many of its major counterparts as investor risk appetite wanes. Encouraging gains seen in several key economic releases are having a limited impact this morning as investors remain focused on the impending “fiscal cliff.” Little is known about the progress lawmakers may be making with negotiation sessions being held behind closed doors. Lobbyist and special interest groups are clamoring for the extension of key tax deductions including those related to home mortgages as both Democrats and Republicans search for new government revenue opportunities. President Obama will take his case for higher taxes and spending cuts to the people with a whirlwind schedule of meetings with factory owners, middle-class constituents and special interest groups planned for the latter half of this week. Meanwhile, US data came in better than expected with the most notable improvement in durable goods where the measure stagnated after the previous month’s 9.2% gain. While a flat reading is not the most encouraging number, it is better than the 0.7% decline that was forecast. A bump in nondefense related capital goods orders led the broad measure higher in a sign that business leaders are investing despite the looming “fiscal cliff.” Consumer confidence also gained by more than expected, coming in at 73.7 versus the 73.0 that was anticipated. Home prices gained at a modestly slower pace however, with the house price index gaining just 0.2% m/m as a sharp rise in listings after the November presidential election diluted the market.
EUR – The euro has pulled back from a one-month high as Greece’s debt sustainability remains a cause for concern. Eurozone and IMF leaders are willing to consider cutting their interest charges on Greece’s various “bailout” loans and giving it more time to make good on its debts. However, it appears that the deal will be contingent on a pending sovereign debt buyback operation planned for some time before December 13th. If that proceeds without any delays, EU and IMF officials have preliminarily agreed to cut the goal for Greece’s debt as a percent of GDP to 124% by 2020 rather than 120%. Greek leaders appear positive for the time being with the country’s finance minister Yannis Stournaras telling reporters this morning that the decision “keeps Greece in the euro.” Despite the apparent progress, investors are not yet convinced that Greece is in the clear just yet. Consequently, the euro will likely gravitate back towards the convergence of its 50 and 200-day MAs, currently in the mid 1.28’s, against the USD.
GBP – Sterling is mixed this morning, gaining against the EUR, but falling versus the dollar. The GBP gained against its mainland European counterpart as investors seek the relative safety of British government debt and the pound itself as an alternative to Eurozone assets. However, gains have been limited against the USD as the future of British monetary policy grows cloudier with yesterday’s announcement that current BoC Governor Mark Carney will replace BoE Governor Mervyn King at the end of the latter’s term. Carney’s rather hawkish policy stance will contrast growing calls for more BoE stimulus with Bank member Fisher telling reporters just this morning that more QE will likely be needed before the end of the year.
JPY – The yen pared much of yesterday’s gains before a report is expected to show a sharp rise in the purchase of foreign government bonds. With PM frontrunner Shinzo Abe continuing to call for further powerful monetary easing and debasement of the yen, Japanese investors have nearly tripled their holdings of overseas debt. Conversely, it is expected that foreigners reduced holdings of both Japanese stocks and bonds, thus putting the yen under further pressure.
Commodity Currencies – The commodity linked currencies are mostly lower this morning as investors turn a bit more risk averse. Raw goods are in the red with oil falling to $87/bbl, gold down to $1745/oz, and copper slipping to $353/lb. The CAD is marginally lower against the dollar, but is higher versus most of its other major counterparts as the strong data out of the US – Canada’s main trading partner – provides support. Similarly, the MXN continued to strengthen overnight with Mexican President elect Pena Nieto set to meet with his US counterpart later this week. The AUD jumped to a two-month high overnight, but has since pared some of those gains as stocks and commodities decline.
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