USD makes losses
The USD had reasonable losses in opposition to a number of its higher yielding currency counterparts, after an increase in traders risk taking after signs of a collapse in US budget negotiations. In the European session the USD/CHF fell by 25 pips to trade very low at 0.9155 on Wednesday. On the other hand the GBP/USD gained 21 pips during the noontime session to trade above 1.6225. With regards to the yen, the greenback was constantly within the reach of a recent 20 month high, as there were anticipations that an aggressive policy for monetary easing would soon be undertaken by the Bank of Japan.
On Wednesday there were strong indications that traders would continue to monitor the developments that are taking place in the US budgetary negotiations. There is also an urgent need to resolve the standoff so as to prevent the execution of a set of automatic tax increases and budgetary cuts, branded as the “fiscal cliff”, at the start of the New Year.
Encouraging trends for Euro
There is encouraging news that the economy in Ireland has grown in the third quarter by 0.2 percent, the Spanish bond auction pulled smaller yields (presenting more market confidence) and the credit rating of Greece was returned to ‘B’. Nevertheless, the development report missed consensus, as the auctions were meant for short term bills only and the score enhancement comes to post restructure assets. There was another update that informed Spanish bad loans hit a record of 11.2 percent and Catalan permitted taxes on bank deposits, thus cementing its future in the liquidity crisis.
Sharp gap in yen
The opening of the yen was rather low as it opened with a sharp gap that pulled down its earlier crosses of multi month and multiyear highs. After the forceful decline that yen had undergone through the past few months, this could have superbly established the collapse of an aggressive inclination as the ‘buy the rumor, sell the news’ anecdote played out for the Japanese election. Nevertheless, the new leadership of the country under Prime Minister Abe has recognized the fact that in case they do not maintain the pressure on, the currency is likely to normalize. As a first step in this regard, 71 trillion YEN budget spending cap that was imposed by the DPJ has been removed. This is the start of further actions to be taken by the government. The Prime Minister has also reiterated his wish for a 2 percent price increase target. This strategy may possibly be adopted this week, but the market is by now pricing in a boost to the asset purchasing program.
Crude oil prices increase, ahead of US budget compromise
In New York, crude oil prices increased for the third consecutive day on Wednesday in the anticipation that an accord will be reached to prevent a US budget stalemate that may trigger automatic spending cuts and tax enhancement next year, sapping fuel demands.
On Monday, there was a gain of as much as 0.8% in the WTI futures, which is the highest level in the last two weeks. The US President has made new offers on the fiscal cliff after the Speaker dropped his opposition raising tax rates for some top earners.
Crude oil for delivery in January went up by as much as 70 cents to $87.90 a barrel in electronic trading on the New York Mercantile Exchange and was at $87.71 at 10:48 am London time. The February delivery future which traded more actively rose 51 cents to $88.18 a barrel. Brent for February settlement on the London based ICE Futures Europe exchange gained as much as 82 cents, or 0.8%, to $108.46 a barrel. The front month European benchmark contract was at a $20.07 premium to the equivalent WTI future.