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Fiscal cliff edging the market

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Pound Sterling

For a second day the Pound was able to post gains against the Euro. The British currency was aided in its advance by data revealing an improvement in confidence among UK executives regarding the nation’s economic outlook for 2013. Sterling advanced 0.3 per cent against the Euro but remained little changed against the US Dollar. Whilst announcements pertinent to the ‘fiscal cliff’ will be the dominant cause of market movement this week the Pound could also be affected by UK manufacturing/services PMI figures for December and various statistics relating to the housing sector.

US Dollar

The US Dollar pared advances made against several of its main counterparts on Friday after US Lawmakers once more attempted to reach a budget agreement which would allow them to bypass the upcoming ‘fiscal cliff’. With time running out fast significant ‘Greenback’ volatility can be expected today. If an accord cannot be reached and the series of automatic tax hikes and spending cuts go ahead, risk aversion could dominate the marketplace, boosting safe-haven currencies like the US Dollar and Japanese Yen.

The Euro

After a bearish start to trade on Friday the Euro enjoyed a modest rebound on the back of US concerns. ‘Fiscal cliff’ developments are likely to be the main cause of fluctuations in the common currency this week, but Euro movement could also result from Eurozone data releases, including Wednesday’s German consumer price index, Thursday’s German unemployment change figures and Friday’s estimated Eurozone consumer price index.

Australian Dollar

The ‘Aussie’ was able retain recent advances following the release of a private gauge which showed better-than-expected Chinese expansion. With the outlook for the South Pacific nation’s main trading partner improved the Australian Dollar strengthened by 0.4 per cent against the Japanese Yen and 0.1 per cent against the US Dollar. ‘Aussie’ movement may occur tomorrow following the release of the AiG performance of manufacturing index.

New Zealand Dollar

After a final reading for a Chinese manufacturing gauge compiled by HSBC Holdings Plc and Markit Economics came in at 51.5, and not the 50.9 originally estimated, the New Zealand Dollar was able to advance, gaining 0.4 per cent and 0.7 per cent on the US Dollar and Japanese Yen respectively. A lack of significant economic news for New Zealand in the week ahead means that fluctuations in the ‘Kiwi’ are likely to result from ‘fiscal cliff’ developments and Chinese data releases, including non-manufacturing PMI.

Canadian Dollar

Fears that US Lawmakers may not be able to avert a series of tax increases and spending cuts which could push America into recession caused the Canadian Dollar to drop on Friday, closing trade 0.16 of a cent lower than it began. Developments relating to the all-important ‘fiscal cliff’ will cause volatility in the Canadian Dollar this week, but data releases scheduled for Friday – including Canadian net change in employment for December – could also cause movement.