Forex Flash: Dollar down as fiscal cliff talks edge onwards – Wells Fargo
FXstreet.com (Barcelona) - Nick Bennenbroek, Head of Currency Strategy at Wells Fargo has noted that the dollar is slightly lower overall, although financial markets are largely on hold as they await the outcome of the U.S. budget talks.
He adds that political leaders have yet to reach an agreement that would avoid the tax increases and spending cuts that are set to take effect next year based on current legislation. There is a mixture of both positive and negative headlines surrounding the talks. Media reports suggest there has been some movement by both Democrats and Republicans, most notably on the income threshold at which higher income tax rates should apply for individuals and households. However some of the key players in the budget talks, such as Senate leader Reid, have said that Democrats and Republicans are still "apart on some pretty big issues".
Bennenbroek continues to note that for now financial markets still expect that a deal can and will be reached if not today then in the early days of 2013, an expectation limiting downside for equities. He adds that European equities are only slightly lower, while U.S. equity futures are pointing to a slightly weaker open. For currency markets, the yen is lower and the euro is steady, while the pound, Scandinavian currencies and NZ dollar are all higher. Emerging currencies are mixed, with the won, Mexico peso and Turkish lira among today's gainers, and the rupiah, ruble and rupee among today's decliners.
He finishes by commenting that, "Still, as time ticks by without a budget agreement, financial markets are becoming increasingly nervous. The longer a budget agreement remains out of reach of U.S. political leaders, the greater is the risk of weakness in most foreign currencies."
He adds that political leaders have yet to reach an agreement that would avoid the tax increases and spending cuts that are set to take effect next year based on current legislation. There is a mixture of both positive and negative headlines surrounding the talks. Media reports suggest there has been some movement by both Democrats and Republicans, most notably on the income threshold at which higher income tax rates should apply for individuals and households. However some of the key players in the budget talks, such as Senate leader Reid, have said that Democrats and Republicans are still "apart on some pretty big issues".
Bennenbroek continues to note that for now financial markets still expect that a deal can and will be reached if not today then in the early days of 2013, an expectation limiting downside for equities. He adds that European equities are only slightly lower, while U.S. equity futures are pointing to a slightly weaker open. For currency markets, the yen is lower and the euro is steady, while the pound, Scandinavian currencies and NZ dollar are all higher. Emerging currencies are mixed, with the won, Mexico peso and Turkish lira among today's gainers, and the rupiah, ruble and rupee among today's decliners.
He finishes by commenting that, "Still, as time ticks by without a budget agreement, financial markets are becoming increasingly nervous. The longer a budget agreement remains out of reach of U.S. political leaders, the greater is the risk of weakness in most foreign currencies."
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