Forex Roundup: Dollar (USD) Reverses Obama Re-Election Losses, Euro (EUR) Declines

on Nov 9, 2012

While the re-election of President Barak Obama predictably weighed on the greenback, given the President’s support for monetary easing, the US dollar managed to reverse losses against other majors, with investors’ attention quickly turning to the looming US fiscal cliff. In Europe, Greece’s Prime Minister Antonis Samaras managed to get the austerity measures needed for bailout funding approved; however, the EU finance ministers’ indication that they might delay the decision on giving Greece its next round of aid pushed the euro to a two-month low versus the US dollar.

**US Election, Fiscal Cliff Woes**
Following the news of President Obama’s re-election, the US dollar lost ground against a basket of currencies, with investors expecting US monetary policy to remain “loose” during Barak Obama’s second term. Later during the week, however, focus shifted to the impending expiry of the tax cuts introduced during the Bush era, popularly known as the US “fiscal cliff”, with fiscal cliff concerns fuelling demand for haven currencies, most notably the dollar and the yen. On November 7, the Financial Times reported that the dollar index measuring the greenback’s performance against a basket of majors, advanced by 0.2 percent to hit a two-month high.

**Renewed Euro Concerns**
On November 9, the euro fell to a two-month low versus the dollar, with Bloomberg reporting that the EU finance ministers said they will delay for “weeks” the decision to give Greece its next round of aid. “You have a Greek political situation that looks more tenuous than it did 48 hours ago, and you have European ministers who will potentially hold off giving aid to them until later this month,” said Aroop Chatterjee, a currency strategist at Barclays Plc (LON:BARC), as quoted by Bloomberg. “It makes for increased market uncertainty, and the euro sold off as a result. We’ve not talked about Europe for a good two weeks – it’s time to put it back on the radar.”

**Bank of England Decision Boosts the Pound**
!m[Pound Set For Second Weekly Drop Versus The Greenback Following Gains Against Most Majors ](/uploads/story/760/thumbs/pic1_inline.png)The euro lost ground against the pound as well, with sterling advancing this week following the decision of the Bank of England to halt the expansion of its bond-buying programme. Bloomberg reports that on November 8, the pound gained 0.2 percent to 79.74p per euro after reaching 79.61p, its strongest level since October 1. And while the pound is set for a weekly gain versus the euro, it is likely to post a 0.2 percent weekly decline versus the greenback.

**Yen Declines ahead of GDP Data**
On November 9, the Japanese yen lost ground against major peers on speculation that data on Japan’s GDP expected to be released next week would show that the world’s third largest economy contracted in the third quarter. Bloomberg reports that the yen lost 0.3 percent versus the euro and 0.1 percent against the dollar.

Earlier during the week, however, the yen benefitted from the fiscal cliff concerns, with the FT reporting that on November 8, the dollar slipped 0.4 percent to ¥79.61.
“My bias is for yen to go weaker,” noted Hans Kunnen, chief economist at St. George Bank Ltd, as quoted by Bloomberg. “The Japanese economy isn’t doing well. It’s troubled and the domestic market is flat, so it’s hard to find reasons to buy the yen.”
**The Aussie and the Kiwi**
Both the Australian and New Zealand dollar advanced on November 9, boosted by China’s industrial and retail sales data improving the outlook for the South Pacific nations. Earlier during the week, the Australian dollar hit its highest level in five weeks following the decision of the Bank of Australia to maintain its key interest rate unchanged contrary to analysts’ expectations. The FT reports that on November 6, the Aussie rose 0.8 percent against the US dollar and 0.7 percent versus the yen.
The New Zealand dollar, however, had a tougher week than its Aussie counterpart, with New Zealand unemployment data sending the Kiwi to a two-week low versus the US dollar and the yen. On November 9, Bloomberg reported that the New Zealand dollar fell 0.5 percent against the dollar and 1.1 percent against the yen, after Statistics New Zealand said that the nation’s unemployment rate increased to 7.3 percent in the third quarter, the highest since 1999.


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