Dollar to stay strong
The win for Obama may increase the trader’s appetite to take risks for the short term but along with it will raise the risk of a fiscal cliff. Although a fiscal cliff will hurt the US economy the dollar is expected to stay strong. The Federal Reserve’s open ended program too will be unable to make the dollar weak for the medium term. The dollar is more strongly placed than other major currencies owing to its strong fundamentals. China has to make structural changes to increase domestic consumption, US manufacturing costs are becoming more competitive, US is producing cheaper energy through ‘shale gas revolution’ etc. are some of the factors that are favoring the dollar to hold strength against its competitors.
Fall after early rise
Euro depreciated against the dollar after the Obama reelection news came before the Greece austerity vote. There was an initial rise after the unpredictability of the U.S. election was over with but it started to fall again due to the weak economic condition of the euro zone. The euro was down at $1.2758 today after a brief rise. It fell from the $1.2814 mark it was late on Tuesday. The euro also fell because of the announcement of the European Commission that the euro zone economy will grow by 0.1 percent by next year after claiming a 1 percent rise six months earlier. There are also official data that reveal a fall in German and Spanish industrial output.
Fear strengthens yen against dollar
Obama’s reelection has made economists of Japan worry of a stronger Yen as Obama’s policy supports a weaker dollar. This policy does support more exports for the U.S. but leaves the yen strong hence diminishing Japanese exports. It does not help the economic fundamentals of Japan. The failure of Greece to win a bailout along with the Obama victory is expected to impart strength to the yen. The US Federal Reserve is going to take easing measure which would imply even more easing requirements on the part of BOJ. It will have to engage another five or ten trillion yen more in asset purchases to keep up with the dollar.
Dip after Obama win
The budget cuts and tax increases implied by an Obama victory has led to a fall in crude oil prices on Wednesday, as traders believe demand will take a hit. There are signs of a fiscal cliff that would hamper the economic growth or might even lead to a mild recession. Oil prices have suffered a steady decline after reaching the $99 mark in mid-September. The reason being a rise in supply from the U.S. and also the falling demand for crude oil due to weak economies. The data on supply from the U.S. is presently volatile due to the effects of superstorm Sandy that has affected millions of households across the U.S.