Obama's election prompts dive into safe haven assets as fiscal cliff looms, whilst Greece narrowly pass austerity measures

Tom Tong08/Nov/2012Currency Updates

USD

Of course the big news yesterday was that of the US Election which saw Barack Obama secure another 4 years in the Whitehouse. Following this, risk appetite fell and haven currencies were in demand as investors’ attention was drawn quickly towards the looming fiscal cliff in the US, with speculation over how well the new Obama administration would tackle negotiations on the US budget changes (the fiscal cliff is a mix of tax increases and spending cuts due to extract some $600 billion from the economy starting Jan.1, and will almost certainly send the US economy into a recession). Earlier in the day, the Greenback lost ground against sterling and the euro, as the Obama win was seen as a green light for the continuation of the Fed’s monetary easing stance.

EUR

Greece have made a comeback into our daily report as yesterday it was announced Greece’s parliament is due to vote on a new raft of austerity measures, which would save the ailing Hellenic economy a total of €13.5bn. The further austerity measures were narrowly passed last night, as lawmakers backed the measures by 153 votes for to 128 votes against. There were 18 abstentions by deputies from the three parties forming the coalition government.

Antonis Samaras, the centre-right prime minister, said deputies were voting on “whether Greece would remain a member of the euro or return to international isolation, collapse into bankruptcy and go back to the drachma”. Greek workers have responded to the news by staging a 48hr walk-out – probably the last thing a struggling economy needs. This news coupled with lower than expected German industrial output data caused the single currency the slide to a one month low against the pound. It also lost ground against USD as haven flows took hold of investors money yesterday.

The ECB are also due to meet today and while no rate cuts are expected, growing evidence that the eurozone is in recession is likely to boost expectations of more easing in the coming months.

GBP

Nerves ahead of a Bank of England meeting today kept investors wary of the British pound yesterday. Sterling fell 0.1% against the Greenback, however rose to a 1-month high against the euro. UK GDP figures in the third quarter and comments by Bank of England policymakers have prompted investors to lower their bets on further easing from the BoE’s (MPC) today, a factor that has helped the pound in recent weeks. Having said that, a slew of weaker-than-expected industrial, housing and retail sales data has dented hopes of a sustained recovery in the fourth quarter.

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Written by Tom Tong

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