Obama Victory Causes Small Dollar Drop

8 November, 2012

In the unlikely event that you were asleep for the entirety of yesterday, you’ll be unaware that Barack Obama managed to secure victory in the US elections. Analysts are pointing out that one of the main challenges facing Obama in the next four years will be the state of the US economy, with the immediate concern being what has been dubbed the ‘Fiscal Cliff’. This essentially marks the end of currently existing stimulus measures on January 1st, and the introduction of cuts to defence, education and government spending. Many assume that this will bring the US into recession, unless Mr Obama can reach a deal with the Republican party before then. In the short term, Obama’s victory makes it seem likely that the current economic strategy is here to stay, causing the value of the dollar against sterling to drop slightly, after a slight rise on Tuesday, fuelled by hopes of a Romney victory, which would have seen more immediate tightening on the economy.

Sterling also saw positive news against the Euro yesterday, as ECB President Mario Draghi said he expected the eurozone to remain weak “in the near term”, helping sterling reach 1-month highs against the European currency. There was some positive news for the Euro however, as the Greek parliament voted to pass new austerity measures. However, the fact that the vote was passed by only three votes, as well as the violent protests against it, means that any short-term euro strength is likely to be muted. Greek MPs must now pass a revised budget on Sunday before eurozone finance ministers meet next week to approve 31.5bn euros in fresh loans from the European Union. It remains to be seen if this new bailout loan will be as effective as previous ones.

In the UK, the major data coming out today is the Bank Of England’s monetary policy committee meeting. Analysts aren’t expecting the bank to announce any further Quantitative Easing, but sterling could see some weakness. The ECB are also meeting later today, and the results of that meeting are likely to cause some change in the markets, although no major news is expected.

Both the US dollar and the Euro rates are likely to see change against sterling rates this week, so if you have any currency requirements coming up, please don’t hesitate in calling Currency Index to see how we can assist.