USD in a largely strong state
The concerns over the U.S. fiscal policy combined with the fears surrounding the European economy has made the US dollar a lucrative safe haven for the traders which is imparting strength to the currency much to the dismay of the government. The fiscal cliff, automatic tax increments and cuts in the spending money are going to take effect on the 1st of January. This is providing support to the USD and would threaten the export based US economy if the government fails to reach an agreement. The yen is having a similar fate. Markets will be closed in the U.S. on Monday due to a national holiday.
Euro dips over growth concerns
The euro zone’s debt crisis and ever degrading economic conditions is taking its toll on economic growth globally. The euro fell again to a two month low against the dollar and further losses are expected. The safe havens of the Japanese yen and US dollar are gaining strength in comparison to growth linked currencies like the Australian dollar. Growth is likely to be slow in the largest economy of Europe i.e. Germany and industrial production in France, the second largest economy, does not seem much brighter either. Investors await the budget vote decision of Germany. The euro fell to as low as $1.2688 and was last at $1.2713. It also lost value against the yen up to the 100.38 level settling at 101.03 at Friday’s close.
Japanese yen undeterred by the policy of the Bank of Japan
The Japanese yen fell against its major counterparts. It dipped to an all new monthly low of 79.06 against the dollar. The positive interest rates will make it more attractive to the traders and hence even more appreciation in the Japanese currency is expected. The BOJ remarks did not manage to lead to any weakening in the currency and more pressure on the bank is expected to counter the risk of deflation. There is an increasing threat of double dip deflation as the BOJ is likely to fail in its attempt to achieve a 1% inflation target. The current solution used for asset purchases by the bank is likely to continue but little impact is expected on the currency as the economy is overall in a low yielding mode.
Crude oil rises after big fall
Oil prices soared in response to a drop of almost 4% in the last session. The state of demand from the United States and Europe is still uncertain. After the uncertainty of the US presidential elections were removed the oil slump due to a fragile global economy led to a consequent dip in all other commodities. The future shows more weakening of the euro along with an entailed strength of the dollar. This does reduce oil’s role as a class of assets. The role of a second winter storm followed with the superstorm Sandy is also being manipulated by the investors, as the impact of which will unfold soon.