Currency watch: Back to business for victorious Obama, as Europe struggles on

Now that President Obama has secured a landmark second term in the White House, its back to business as usual, with the upcoming “fiscal cliff” problem the top priority.

President Barack ObamaThe principal bone of contention relates to the impending expiration of tax cuts on high income earners in the US.

The savings which could be made by withdrawing this tax break would remove US$1.2 trillion (over the life of the programme) from the current deficit. The conflict arises as Republican leadership is adamant that no further tax increases should by imposed at all, irrespective of income bracket.

This is a prime example of the difference in opinion that needs to be set aside as a common stance needs to be reached and quickly. It is this potential stand-off situation that has the markets so worried about the upcoming situation.

The key for USD and the government will be the speed at which the government can act, any progress with regards tackling the bipartisan divide and working towards a common solution will strengthen USD especially heading into a time where GBP and EUR continue to struggle.

The US markets will also take strength from the continuity that comes with Ben Bernanke staying as head of the Federal Reserve. A new government would have meant a new chairman, which would have re-opened the debate of the benefits of the QE which would have stirred markets further.

Post-election risk has always been tepid, and yesterday’s performance was no different. With the elections out of the way, the narrative switched back to the Eurozone and the latest edition of “how not to cope in a global recession”.

Equities faltered as market fears over the impending “fiscal cliff” grew (which is set to be the go to reasoning behind poor risk liquidity and returns for the foreseeable future), the Greek parliaments acceptance of the austerity package and the hugely concerning deterioration in Germany.

Industrial production in Germany fell by -1.8 vs -0.5% (exp) for the month of September. We saw GBP/EUR spike up above the 1.25 level once more, with the likelihood that it will remain comfortable at those levels. The worsening situation in Germany has largely gone unnoticed, simply because there have been bigger distractions elsewhere. But recent data will be at the forefront of EUR sell-off in capital markets.

Jeremy Cook is chief economist at World First foreign exchange

 

Leave a Reply

Your email address will not be published. Required fields are marked *

Please note that comments are subject to our posting guidelines in accordance with the Defamation Act 2013. Posts containing swear words, discrimination, offensive language and libellous or defamatory comments will not be approved.

Subscribe to our newsletters

Sales Manager

James Eadie Ltd
London, UK

Wine Ambassador Role

Ramón Bilbao UK
London, UK

Fine Wine Logistics Coordinator

IG Wines
London, UK

Sales Manager

Top Selection
London, UK

Assistant Retail Manager

The Whisky Exchange
London, UK

Marketing Manager

Ellis Wines
Hanworth, Middx, GB

Commercial Analyst

ATOM Group
Tunbridge Wells, UK

Customer Service Executive

Marussia Beverages
Marylebone, London, UK

HR Administrator

Amathus Drinks PLC
London, UK

Trade Marketing Manager

Australian Vintage Limited
Croydon, UK

The World Bulk Wine Exhibition

Amsterdam,Netherlands
20th Nov 2017

The Drinks Business Green Awards 2017

London,United Kingdom
20th Nov 2017

The Global Spirits Masters Lunch

London,United Kingdom
1st Dec 2017
Click to view more

Champagne Masters 2017

The only Champagne blind tasting in the UK, the competition will reward the best wines in the following categories:

The Global Rosé Masters 2017

With wines from the palest of pink to almost ruby red, bone dry to almost cloyingly sweet, reductively handled to barrel-aged, as well as gently spritzy to fully sparkling.

Click to view more