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Forex: Dollar Volatile But Directionless Amid US Fiscal Cliff Debate

Chris Almeida

Forex_Dollar_Volatile_But_Directionless_Amid_US_Fiscal_Cliff_Debate_body_rewind.png, Forex: Dollar Volatile But Directionless Amid US Fiscal Cliff Debate

THE TAKEAWAY: US Dollar little changed after Japanese election, US fiscal cliff negotiations drive seesaw volatility.

Monday saw the US Dollar gap upward against its major counterparts as the Japanese election concluded with Shinzo Abe coming to power as expected. The outcome saw USD/JPY open the week sharply higher, with spill-over capital flows reverberating across most USD-based pairs. Consolidation occurred into Monday with the greenback drifting lower as markets digested initial volatility.

House Speaker John Boehner then caused a further Dollar selloff when he announced that he will put a bill on the floor of the US House of Representatives that would include tax increases on incomes of more than $1 million to help address the “fiscal cliff” fiasco. This suggested some progress toward a resolution to the deadlock in US budget negotiations, boosting risk appetite and weighing on the safe-haven benchmark currency. The buck quickly recovered however after Democratic Congressional leaders Harry Reid and Nancy Pelosi said Boehner’s plan would not make it through either chamber of the legislature.

The Dollar’s gains would be short-lived however as optimism about a brewing solution to US budgetary woes drove Asian stocks higher. While no clear deal was reached, Boehner’s move to consider a meaningful tax increase appeared to inspire some confidence in a narrowing of the gap between the two sides of the debate. That too would not see follow-through though. Jitters resurfaced later in the week, sending US stocks lower and the Dollar higher as investors sought safe haven assets anew.

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