Daily Forex Roundup: Greenback (USD) Declines, Riskier Assets off to a Strong Week

on Nov 19, 2012

The US dollar is off to a bad week, with fiscal cliff optimism weakening the greenback and fuelling demand for higher-yielding assets. Meanwhile, on Monday the euro was supported by hopes that Eurozone ministers would reach a deal as regards Greece’s funding, with the single currency’s gains likely to remain limited due to possible opposition from the International Monetary Fund (IMF).

**Fiscal Cliff Optimism Boosts Riskier Currencies, US Dollar Down**
On November 19, Bloomberg reported that the dollar index, which measures the greenback’s movements against the currencies of several major US trading partners, fell from almost a 10-week high, dropping 0.3 percent to 81.046. The “scene” for the weak performance of the greenback was set by the US President Obama, who said he was “confident” that an agreement as regards the looming US fiscal cliff could be reached. Although a fiscal cliff resolution is good news for the US economy in general, it fuels appetite for riskier currencies and weakens the US dollar, a traditional haven currency.

“It’s pretty much just market optimism mainly regarding the fiscal-cliff issue,” notes Sireen Harajli, a foreign-exchange strategist at Credit Agricole SA (EPA:ACA), as quoted by Bloomberg. “There’s been an improvement in risk aversion, which hurts the dollar.”
The risk aversion improvement, however, benefited the Australian and the New Zealand dollar, with the Aussie climbing 0.7 percent to $1.0408, and the kiwi appreciating to 81.78 cents. Brazil’s real advanced against most of its major counterparts, with the currency gaining 0.5 percent to 2.0754 per dollar.

**The Single Currency Climbs on Greek Deal Optimism**
!m[Euro (EUR) Gains Limited, Japan’s Stimulus Woes Weighing On The Yen](/uploads/story/850/thumbs/pic1_inline.png)The euro gained 0.2 percent versus the greenback to $1.2769, as reported by the Financial Times. In addition to improved risk sentiment, the single currency benefitted from optimism that the Eurozone finance ministers would agree on more funding for Greece. Reuters reports, however, that analysts see the euro’s gains as remaining limited due to potential opposition from the IMF, which wants a permanent solution to the Greek drama. “Hopes that maybe we will get better news out of Greece is providing a little bit of support to the euro,” notes Daragh Maher, currency strategist at HSBC (LON:HSBA, NYSE:HBC, HKG:0005), as quoted by Reuters. “I am not supremely confident (of a resolution being reached on Tuesday). The history of this process has been one of delays.”

**“Unlimited Yen” Prospects**
The FT reports that the yen which is another traditional haven currency, gained marginally against the US dollar, to ¥81.16, while remaining flat against the single currency. Earlier, however, Japan’s currency touched a seven-month low versus the greenback. Unlike the US dollar, the yen’s losses were not so much due to fiscal cliff optimism, but were fuelled by speculation of further monetary easing associated with the upcoming elections in Japan and the potential victory of the Liberal Democratic Party, whose leader Shinzo Abe has called on the Bank of Japan (BOJ) to print “unlimited yen”.
Tuesday will be a crucial day for the yen as well, with traders awaiting the outcome of the BOJ policy meeting. “It’s most unlikely the BOJ will make major changes this meeting, but the trend (for the yen) seems to be changing,” points out Audrey Childe-Freeman, head of foreign exchange strategy at BMO Capital Markets, as quoted by Reuters.

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