Are we going to leap into 2013 from a fiscal cliff?

Currencies Direct December 27th 2012 - < 1 minute read

The attention of the world's foreign currency exchange markets will be on the US today as the financial markets return from the Christmas holiday.

Policymakers in Washington have just five more days to deliver a deal that would prevent the so-called fiscal cliff, tax hikes and government spending cuts, which could be triggered at the start of 2013.

The Congressional Budget Office projects the jolt of austerity will tip the US back into recession, which will play badly with the US dollar.

President Barack Obama has cut short his Christmas break to tackle the budget crisis as the US faces breaching its $16.4 trillion debt limit.

For foreign exchange markets, a fiscal cliff deal is likely to negatively impact the greenback and continue its recent slide from a safe-haven currency as it falls in value against the GBP and EUR.

One exception could be against the Yen, as the Japanese currency hit a 20-month low overnight, due to speculation that the incoming prime minister, Shinzo Abe, will try to beat deflation by weakening the currency.

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Currencies Direct

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