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Dollar, Euro slip as US fiscal cliff triggers risk aversion in markets -report  Join our daily free Newsletter

MENAFN - Kuwait News Agency (KUNA) - 12/11/2012

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(MENAFN - Kuwait News Agency (KUNA)) The US Dollar traded in a volatile manner against its major counterparts as last week revolved around the US presidential election, the euro dropped dramatically as concerns over the US fiscal cliff triggered risk aversion in the market, said a report by the National Bank of Kuwait Sunday.

The NBK report added that the US Dollar Index dropped sharply amid the announcement of the re-election of President Barack Obama as prospects of the continuation of the ultra-ease monetary policy triggered the sell-off.
"However, after the election, markets in the US melted over 3 percent on worries on the potential fiscal cliff debate coming in the next couple of weeks," reads the report.

John Boehner added that Republicans would be willing to accept new tax revenue to reduce the nation's budget deficit if accompanied by a tax overhaul and changes to entitlement programs. "Shoring up entitlements and reforming the tax code, closing special interest loopholes and deductions, and moving to a fairer, simpler system, will bring jobs home and result in a stronger, healthier economy," he said.

Boehner also called for bipartisan negotiations to avoid the fiscal cliff of tax increases and spending cuts scheduled to begin in January. The news drove the greenback higher across the board as the markets shifted to risk aversion. The USD index closed the week at 81.026.

Meanwhile the NBK report pointed out that the Euro opened the week at 1.
2835 and reached a high of 1.2876 amid the US election.

It noted that the single currency dropped dramatically as concerns over the US fiscal cliff triggered risk aversion in the market. The currency continued to drop as EU finance ministers announced that they might not make a decision on unlocking funds for Greece, even though the Greek government secured enough parliament votes to approve the austerity program. The Euro closed the week at 1.2714.

The Sterling Pound opened the week at 1.6020 and reached a high of 1.6043 mimicking the Euro's reaction to the US election. Cable then lost its gains and reached a low of 1.5930 as investors sought refuge in the Us Dollar and the Japanese Yen. The currency closed the week at 1.5896.
The Australian Dollar gained dramatically against the US Dollar as the Reserve Bank of Australia refrained from reducing their key lending rate. The Aussie opened the week at 1.0337 and reached a high of 1.0480 amid the central bank's announcement, the currency eased as concerns over the global economy spurred risk aversion in the markets. The Aussie closed the week at 1.0387.

The Japanese Yen gained significantly against the US Dollar as investors flocked to buy the safe haven currency on growing concerns about the looming fiscal problems in the US, which could drive the US economy into recession. The USD/JPY opened the week at 80.27 and reached a high of 80.57 then dropped sharply to close the week at 79.49.

The services sector in the US kept growing in October, a sign that the biggest part of the economy is withstanding a global slowdown.
"The Institute for Supply Management's non-manufacturing index declined to 54.2 last month from 55.1 in September. A measure above 50 signals expansion in industries that account for almost 90 percent of the economy," the report said.

The US exports climbed to a record in September, contributing to an unexpected decline in the trade deficit that gave the world's largest economy a boost at the end of the third quarter.

The gap shrank by 5.1 percent to USD 41.5 billion, the smallest since December 2010. The gain in sales to overseas buyers was broad-based, with improvements seen from soybeans to fuel and civilian aircraft. Growing demand from emerging markets in South and Central America may be helping to overcome a slowdown in Europe and China.

Furthermore, the report disclosed that the claims for unemployment insurance dropped last week as the effects of Hurricane Sandy started to show up.

Applications for jobless benefits fell by 8,000 to 355,000 in the week ended Nov. 3. Officials stated that the loss of electricity due to the storm,
suppressed filings, while others said workers who lost their jobs because of the weather were starting to apply. It may take three to four weeks to see the full impact, the spokesman said, which indicates claims may jump back in coming weeks as more storm-related applications begin to be processed.

The European Central Bank kept interest rates on hold as the economic outlook worsens. European Central Bank President Mario Draghi said that the economic outlook is worsening and the bank stands ready to activate its bond-purchase program if governments fulfill the necessary conditions.

"We are ready to undertake" Outright Monetary Transactions, "which will help to avoid extreme scenarios," Draghi said at a press conference after policy makers left the benchmark interest rate at a historic low of 0.75 percent. He also added that "The risks surrounding the economic outlook remain on the downside" and underlying inflation pressures "should remain moderate." With regard to oil market, the report said that oil fell towards the end of the week on speculation that the shutdown of refineries on the US east coast due to Hurricane Sandy will add to already sufficient supplies. Crude fell 2.2 percent to USD 85.21 a barrel, while Brent fell to USD 105.82 a barrel.

Gold rose to a three-week high of USD1,737.60 an ounce, as hopes that the US monetary policy would remain loose after President Obama's re-election and concerns about the fiscal cliff increased investors' appetite for safe-haven assets such as gold.


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