Fiscal cliff proves important across the week in the financial markets

Currencies Direct December 28th 2012 - 2 minute read

The Christmas period of 2012
has been dominated by fears over the fiscal cliff which is expected
to take hold in the US next year, and from the start of January,
with investors fluctuating in confidence with regards to how they
feel this will affect foreign currency exchange rates across
the world.

It had been hoped in recent weeks
that there would be a deal reached that would mean that the
imminent financial issues coming from this would not be as severe
as had been previously feared. However, towards the end of the
week, fears were aired that the country is set to head over the
cliff, meaning that both the pound and euro saw drops in their
levels against the dollar.

Heading into Monday and the last
day of trading before Christmas, the pound had seen a fall after it
had previously seen decent gains last Friday (December
21st), before a late drop in the market saw its rate
against the greenback decrease to below
the 1.6200 having hit 1.6235 earlier.

However, it has been in the days
since the Christmas break that the pound has seen the most
significant slips. On Wednesday (December 26th), the
Congressional Budget Office (CBO) said that with just five
more days to agree a deal over the fiscal cliff, policymakers were
facing up to the fact the fiscal cliff would see the US tipped back
into recession.

This bad news and prediction meant
that the pound saw a slight fall on Wednesday. However, it was
Thursday where the UK currency lost the largest part of its gains
from previous weeks of good news. The pound dropped to a two-week
low against the greenback to finish the midweek at 1.6077.

Having fought to regain the 1.6100
and 1.6200 levels in the past, falling back below both for the
first time in two weeks will be a blow to those investing in the

Throughout the early part of Friday
though, the pound has started to regain some of these losses as it
heads above the 1.6100 resistance level again, hitting 1.6129
against the dollar during morning trading in the European

Elsewhere, it has been an equally
difficult week for the euro after having seen good data at various
times during the last few weeks. The single currency was trading at
around 1.3188 on Monday ahead of Christmas Day, only
marginally lower than it last saw a week ago.

It saw gains on Wednesday
sit at above the 1.3200 resistance level against the
greenback, with trading on Thursday then reaching 1.3240 late in
the day before it fell back once more to trade at the support level
of 1.32000 again as the market closed.

Early on Friday, as news is awaited
further about the fiscal cliff from the US, the pair is once again
pretty still and fluctuating only
slightly, sitting at 1.3285 ahead of lunch on the
final day of the week.

Written by
Currencies Direct

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