Investors may continue to build defensive positions ahead of presidential election results in the US that will mark the beginning of the country’s run towards January’s fast-approaching “fiscal-cliff”.
The US dollar surged to two-month peaks versus a currency basket, as currency players fear that a tight finish in the election race may lead to political deadlock in Washington over the coming weeks. The result of which could see the US economy hit an automatic fiscal policy conversion on January 1st that could send the world’s biggest economy into recession next year.The Australian dollar managed to challenge the US dollar, reaching five-week highs after the Reserve Bank of Australia unexpectedly kept interest rates unchanged. The euro on the other hand will be at risk of collapse following data from the euro area that is likely to highlight the region’s deepening economic woes. The single currency has already fallen to new one-month lows against the pound as persistent talk of Greece’s future destabilises the shared currency.
Sterling
Cable hit a 12-day low as doubts about the impact of US elections forced investors to take a very guarded approach to currency trading. The pound was also pressed by the safer Japanese yen, and its ability to push back was hampered by fragile UK services data. The latest purchasing manager’s index for Britain’s leading services industry suddenly fell to 50.6 in October; a substandard print for analysts who had forecasted a much smaller drop to 52.0 from the prior month’s 52.2 print.
Euro
The euro is in danger of collapsing to two-month lows versus its US counterpart, with traders looking ahead to German industrial orders data that is expected to stress how a shrinking eurozone economy is hurting German exports. The euro has already slipped to fresh one-month lows against the pound after markets opened, dragged lower by growing suspicions Greece will not meet its debt obligations and could face the prospect of defaulting again.
US dollar
The US dollar has gained sharply over the past few sessions, hitting two-month highs against a basket of currency’s as traders hurry to protect themselves against a looming “fiscal-cliff”. US President, Barack Obama, and his Republican opponent, Mitt Romney are apparently closely tied according to the latest opinion polls. Any election result that could seriously weaken their power to influence Congress to broker a deal on US debt, before January’s deadline, is panicking investors.