Smart Daily Currency Note | Fiscal cliff still looms

Sterling

It proved once more to be a mixed day for sterling as the immediate aftermath of the successful Fiscal Cliff negotiations saw significant movements versus its major trading peers. Increased levels of risk-appetite helping sterling touch a 16-month high versus the US dollar, whilst also rising above 142 versus the yen - the highest since May 2010, before seeing a reversal in the afternoon. It is worth noting that these movements may well be exaggerated due to low trading volumes in his holiday season. Furthermore, stock markets across the globe rallied including the FTSE breaking above the 6000 level for the first time since July 2011. It was a different story versus the higher-yielding currencies, losing significant ground versus the Australian, New Zealand and Canadian dollars. The release of better than expected Manufacturing Purchasing Managers Indices (PMI) data with a figure 51.4 - anything above 50 represents growth -  was a reassuring sign for the British economy, following several months of decline in the sector. Today sees the release of Construction PMI data, and with it forecast to remain below the crucial 50 level, any news that comes out better than expected is likely to increase economic confidence and demand for sterling. Call in now for the latest news and to get a live rate.

Euro

The euro had a mixed day yesterday rising to the highest level in two weeks against the US dollar of $1.3299, close to its 8 month high, before dropping to 1.3160. Increased risk appetite in the markets and positive German preliminary inflation data drove the euro higher against the dollar in early trading. Further gains for the euro were limited due to fears surrounding the weak euro zone economy in general and the markets dissatisfaction in the US deal. Data released showed that factories in the euro zone fell deeper into recession, highlighted by poor Spanish and Italian Manufacturing PMI figures. Italian PMI data came out better than expected but still showed a significant contraction while Spanish PMI showed a bigger contraction than forecast. The Euro-area wide manufacturing PMI has been in contraction since August 2011. Today we have German unemployment data and the change in the level of Spanish unemployment which could lead to significant movements in this holiday period, so call in now for the latest updates and rates.

US dollar

Risk appetite returned to the markets today in abundance as the fiscal cliff was, if only temporarily, avoided. The US dollar hit a 16 month low against sterling in the early morning as the desire for safe haven assets dropped dramatically as markets expressed their relief over the fiscal cliff deal. The rates were short lived however, slipping back towards the 1.6250 mark in the afternoon as traders seemed to realise the true nature of the deal. While a deal has been reached on tax on high earners, the question of spending cuts hangs over Obama's administration until February. Today, the driving force is likely to continue to be the same risk appetite as well as employment data released in the afternoon. This evening also sees the release of the minutes of the recent Federal Open Market Committee (the American equivalent of the Monetary Policy Committee in the UK) meeting on interest rates. Last month's decision was to keep monetary policy loose until the labour market recovers and market reaction is likely to be muted. Get in touch now for the latest news and prices.

Worldwide

Elsewhere, the biggest mover once again was the Japanese yen, dropping sharply in early trading against all of its major counter parts as risk appetite drove the market before recovering in the afternoon. The Australian dollar, New Zealand dollar, and Canadian dollar all made significant gains in early trading. The Hungarian forint struggled yesterday as data released showed that manufacturing had shrunk by the most in last eight months. Today it is a bank holiday in both Japan and China so trading volumes will remain lower than normal. On the data front we have Swiss economic confidence and PMI figures. Call in today for a live rate from your trader.