Focus moves back to the USA

29 November, 2012

Matthew Boyle

Following Tuesday’s announcement concerning the Greek bailout and with Spain now fully funded until the end of the year, Wednesday saw the focus for concern move away from Europe and towards the US and its potential “fiscal cliff”. With US senate leader Harry Reid voicing concerns over the lack of progress, America seems to be quickly heading towards a crisis that could see a raft of spending cuts and tax rises which could see the worlds’ largest economy fall back into recession with the potential to subsequently de-rail the global market.

This saw a weakening of sterling by almost 0.3% against the dollar with the rate dropping back below the 3 week highs experienced earlier in the week. This could be in part due to “safe-haven” demand – where currencies like the dollar see an increase during times of economic uncertainty.

Despite seeing the pound rise against the single currency with safe-haven flows largely from Euro weakness, many analysts feel that the pound is not reacting to fundamental data with the sensitivity it has done previously. Coupled with poor growth prospects – further highlighted by BoE Chancellor Mervyn King who said the chances of rapid recovery in 2013 are not very great- the sentiment is that investors are wary of betting on further gains.

This morning saw German unemployment revised which is usually bearish for the Euro, however with concerns over how the Greek aid plan will be implemented and a warning of a possible Fitch ratings downgrade for France this is unlikely with the focus most likely weighing heavily upon the dollar. US Q3 GDP figures released later today could hold some clues to the true extent of the heavily discussed “cliff” that is faced and which will be no doubt be the focus of much the markets interest over the coming months.

If you have any transfers coming up, please make sure you speak to your Currency Index broker. With the US and in part global markets staring over the edge of a much feared and damaging cliff, you can be sure to avoid any nasty “slips” in the rate.