New Year starts with new US tax and spending deal

Happy New Year to all of our readers and welcome back to Currency Index’s market commentary.

The new year starts off being dominated by the US President’s success at pushing through a bill to stave off the much feared US fiscal cliff. The cliff, which would have seen millions of people across the US suffer severe tax increases and spending cuts, and would almost certainly have seen the US economy slip into a double dip recession, has finally been avoided after weeks of talks. The Senate initially agreed the proposed bill early on Tuesday, which then left only the House of Representatives to vote on it, before Obama could sign it into law. Despite a last minute attempt by some republicans to delay a vote until Wednesday, in an attempt to get more spending cuts, some additional negotiations pushed the vote through and the bill was passed with a majority of 257-167. Now all that remains is for the President to put pen to paper, and then a collective easing of tension can spread throughout the market.

However, anyone expecting an instant surge of Dollar strength, will be surprised to hear that in fact we have seen quite the opposite. This is mainly seen as a drop in fear levels across the markets and hence a general move by investors back into risk-on positions, rather than any particular further weakness in the Greenback.

In other news today we have Manufacturing PMI data out across Europe this morning, including in the UK and the German CPI inflation figures around lunchtime. The consensus for all of these figures seems to be for most of them to remain about the same, so any serious moves are only likely if there are any surprises.

Stay in close touch with your CI account manager for all of your new year currency transactions, to make sure you are kept well informed of the market’s possible moves.