USD – The dollar looks set to end an otherwise listless week back towards the lower end of its ever-narrowing ranges. Similarly, stock and commodity markets lack direction as politicians remain in a heated deadlock on Capitol Hill over the so-called “fiscal cliff.” In the most recent flare up after two weeks of closed-door negotiations, Republican leaders are fuming this morning after Treasury Secretary Geithner and White House Director of Legislative Affairs Rob Nabors presented details on the Obama Administrations latest proposal to move discussion forward. They proposed $1.6T in new taxes including a raise on households making more than $250K/year, closing loopholes, limiting deductions and raising the estate, capital gains and dividend taxes. The proposal also included a bold proposal to increase government stimulus spending by $50B in 2013, a home mortgage refinancing program and extension of the payroll tax cuts and unemployment insurance. In return, Democrats are offering a further $400B in cuts to Medicare and other entitlement programs. Nonetheless, Republican leaders have called the proposals unbalance, unreasonable, and out of line, leaving negotiations stalled likely through the weekend at the minimum. Consequently, the dollar is left range-bound as investors are largely unwillingly to take significant positions on either side of the market. Meanwhile, personal income stagnated in October and spending fell by 0.2% with activity likely heavily skewed by the negative effects of Hurricane Sandy.
EUR – The euro is back towards the top of its recent ranges this morning, breaking above the key 1.30 handle against the dollar. However, gains are largely driven by the negative news from Capitol Hill rather than positive developments in the Eurozone. On the contrary, a recent poll of investors showed that a majority believe Germany is headed for recession as the region’s sovereign debt crisis will likely drag on for several more years. The results come a day after a government report showed that German retail sales slumped by the most in nearly four years, tumbling 2.8% versus the 0.4% shortfall that was anticipated. Earlier this month, data showed that the Eurozone’s largest economy was expanding at a mere 0.2% pace as factory orders, industrial production, manufacturing, and exports all missed forecasts. Nevertheless, the OECD is still predicting a 0.6% expansion in German GDP in 2013 as the country’s jobless rate remains at 6.9%, a near two-decade low, and business confidence unexpectedly rose this month. Moreover, German lawmakers officially approved the latest deal for Greece that extends the deadline on debt-cutting goals and lowers interest charges.
GBP – Sterling is marginally lower against both the USD and EUR heading into the weekend as investors lock in profits after three days of steady gains. The relative calm in the Eurozone debt saga is also weighing on the pound as investors seek better returns elsewhere rather than the relative safety of low-yielding British assets.
JPY – The yen is weaker this morning as investors are generally encouraged by the decision to ease parameters on Greece’s EU and IMF loans. However, with the push back into the mid 82s, technical indicators are signaling that the yen is now oversold. As such, a pullback is possible in the near term while further weakness is to be expected in the months ahead.
Commodity Currencies – The commodity linked currencies are mixed this morning as are raw good prices. Oil gained to $88/bbl, gold fell to $1712/oz, and copper rose to $360/lb. The CAD edged lower after a report showed that the Canadian economy decelerated in the third quarter with GDP coming in flat versus the 0.1% expansion that was expected. The MXN is slightly higher after the Mexican central bank left interest rates on hold, saying it may still need to raise rates if inflation does not ease. Meanwhile, the AUD is lower ahead of an RBA meeting next Monday at which investors suspect policymakers may lower rates to protect against a slowdown in the mining sector. The ZAR is similarly lower as investors price in further easing from the RBSA after the South African trade deficit unexpectedly widened to -$21.2B as overseas demand for exports slumped.
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