USD falls, Obama win signals more monetary easing


The USD dropped the most in a week against the EUR on speculation Barack Obama’s re-election as President will boost chances the US will maintain monetary stimulus policies that weakens the “Greenback.”

The US currency fell Vs all except 2 of its 16 major peers as Obama defeated Mitt Romney, who disagrees with current Federal Reserve policy.

Obama now faces the so-called Fiscal Cliff, $600-B in tax increases and spending cuts due to be implemented in Y 2013.

Australia’s Dollar rose for a 3rd day as stocks rallied, boosting demand for higher-yielding assets. The EUR gained against the USD as the Greek parliament prepared to vote on austerity measures.

The USD declined 0.3% to 1.2848 per EUR at 10:25 a.m. London time after falling 0.1% Tuesday. The US currency was little changed at 80.37 JPY after dropping to 79.81 JPY, the weakest mark since 1 November. The EUR rose 0.3% to 103.25 JPY.

US monetary policy will remain loose under Obama so the USD will be sold. Dollar selling may not last that long as the US faces the Fiscal Cliff.

Obama prevailed over Romney narrowly in the popular vote, yet achieved an electoral sweep by carrying the crucial states of Colorado, Ohio and Virginia. With Florida too close to call, Obama received 303 Electoral College votes, well beyond the 270 needed to win the White House, compared with 206 for Romney.

Romney said he disagreed with the Fed’s measures to stimulate the economy and would replace Chairman Bernanke at the end of the latter’s term in January 2014. The central bank unveiled a plan in September to buy $40-B of mortgage-backed securities every month in the 3rd round of quantitative easing, The Big Stimulus, after $2.3-T purchases of bonds from December 2008 and June 2011.

Obama’s re-election raises expectations of continued easing by the US Fed, if it leads to lower US yields and higher stock prices, the bias will be for the USD/JPY to fall IMO.

The extra yield investors demand to hold 2 yr US Treasuries instead of similar-maturity Japanese government bonds shrank to 17 basis points, the least since 16 October curbing the allure of the USD over the JPY.

The Australian Dollar rose to a 6 wk high against the USD as the MSCI Asia Pacific Index (MXAP) of shares gained 0.7% and the Stoxx Europe 600 Index advanced 0.6%.

The EUR advanced for a 2nd day Vs the USD as Greek lawmakers prepared to vote on austerity measures needed to keep its bailout on track. There is the expectation that the austerity measures will pass taking some risk away from the EUR.

The EUR declined 1.2% over the past month, according to the data which track 10 developed-nation currencies. The USD rose 0.5% and the JPY fell 1.9%. Stay tuned…

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

Paul A. Ebeling, Jnr has studied the global financial and stock markets since 1984, following a successful business career that included investment banking, and market and business analysis. He is a specialist in equities/commodities, and an accomplished chart reader who advises technicians with regard to Major Indices Resistance/Support Levels.

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