THE TAKEAWAY:US Dollar stronger in New Year as “fiscal cliff” deal reached and focus shifted to FOMC meeting and economic data.
The Dollar lost ground over the New Year holiday as confidence grew that US lawmakers could come to an agreement and avoid the “fiscal cliff”. The dollar gapped lower on the 30th of December as newswires reported that a deal was within reach. After days of negotiations, legislation was passed in the early hours of Tuesday to avoid income tax increases for American families. This saw the Dollar moved lower as US stocks raced sharply higher and investors sought to move into riskier assets.
Once the euphoria following the fiscal cliff deal waned, attention then turned to the better-than-expected ISM Manufacturing data that came out of the US on Wednesday. The positive news for the American economy saw the greenback move higher. Finally, the Dollar surged as the Fed released minutes from December’s FOMCmeeting, outlining a less dovish outlook than expected. The minutes showed that some members of the rate-setting committee expected QE3 asset purchases to finish by the end of 2013, much sooner than the markets seemed to expect.
The spotlight now turns to December’s US Employment report. Expectations call for nonfarm payrolls to rise 150,000 compared with an increase of 146,000 in the prior month. Next week, all eyes are likely to turn to Washington, DC anew as Congress takes up negotiations to raise the US statutory borrowing limit (the so-called “debt ceiling”).