Daily Forex Outlook: Fiscal Cliff Optimism Boosts Euro (EUR), Yen (JPY) Slides

on Nov 29, 2012

With the US fiscal cliff continuing to set the market tone this week, optimism that policymakers would manage to avoid the impending tax increases in the US boosted the euro and limited its losses on November 29. Japan’s currency however declined with positive risk sentiment spurring a yen sell-off.

**Euro Eases, but Finds Support in US Hopes**
Reuters reports that the single currency eased 0.1 percent against the US dollar to $1.2947, but still held well above Wednesday’s intraday low of $1.2880, supported by an improvement in investors’ risk appetite. The single currency was little changed against the yen at ¥106.34, close to its seven month high of ¥107.135.

President Obama said that he hoped to reach an agreement with Congress before Christmas, whereas John Boehner, the top Republican in Congress, also voiced optimism about averting a fiscal crisis. “For the moment, the US fiscal cliff seems to be a dominant theme in the market,” notes Katsunori Kitakura, associate general manager of market-making at Sumitomo Mitsui Trust Bank (PINK:STBUY), as quoted by Reuters.

The euro, however, faces pressure with market players still concerned about the details of the Greek deal and particularly as regards Athens’ ability to hold its end of the bargain. Bloomberg quotes Masato Yanagiya, head of currency and money trading at Sumitomo Mitsui Banking Corp as seeing the single currency declining. “Compared with the US, Europe’s economy is clearly in bad shape,” notes Mr Yanagiya, as quoted by Bloomberg. “Looking at those fundamentals, the euro will be sold against the dollar over the longer term.”

**Positive Sentiment Spurring Yen Selling**
!m[South Korea’s Won (KRW), Mexico’s Peso (MXN) Advance](/uploads/story/926/thumbs/pic1_inline.png)The yen, which in the last couple of weeks was dragged down by speculation of aggressive monetary easing by the Bank of Japan should the opposition party leader Shinzo Abe become the country’s next prime minister, fell versus most of its major peers. Reuters reported on November 29 that the US dollar gained 0.1 percent to about ¥82.15, moving away from a one week low of ¥81.68 reached on Wednesday when the yen edged up on concerns surrounding the US fiscal cliff. Reuters quotes a Singapore-based trader for a Japanese bank as seeing the dollar trading in a ¥81.00-¥83.00 range ahead of the December 16 election in Japan.

**Won, Peso Up**
US fiscal cliff optimism boosted the peso, with Bloomberg reporting that Mexico’s currency rose for first time in three days with positive comments from US policymakers brightening the outlook for Mexico’s exports. The currency gained 0.4 percent to 12.9896 per dollar after reversing an earlier decline of as much as 0.3 percent. This year, the peso has advanced 7.3 percent against the US dollar.
South Korea’s won was also lifted by the positive US economy outlook, and rose by 0.2 percent to 1,084.13 per dollar. The won’s gains however were limited with investors remaining cautious on account of potential government intervention. The Financial Times reports that South Korea’s currency has been one of the top performers of late, sitting at a 14-month high against the greenback and also strengthening against the yen.


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