Obama Cuts His Holiday Short In Attempt To Keep The US Out Of Recession

Tom Tong27/Dec/2012Currency Updates

GBP

The pound was little changed against the dollar and the euro before a report that economists forecast will show bank lending for U.K. home purchases increased in November.

Sterling climbed to the strongest level against the yen since April last year amid speculation the Bank of Japan will step up stimulus measures to support growth. The number of loans banks approved for house purchases rose to 34,500 last month from 33,039 in October, according to the median estimate of seven analysts in a Bloomberg News survey.

The British currency has gained 1.3 percent this year, according to Bloomberg Correlation-Weighted Indexes, which track 10 developed-market currencies. The euro declined 0.5 percent and the dollar fell 2.9 percent.
Gilts returned 2.2 percent this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds gained 4 percent and Treasuries earned 2.1 percent.

EUR

Italian bond yields at two-year lows show investors are confident the rally that started after Mario Monti’s appointment as Prime Minister will survive an election political pundits say is tough to call.

Monti ruled out running in the Feb. 24-25 vote at a Dec. 23 press conference, while saying he would “consider” being the prime-ministerial candidate for a party that adheres to his economic agenda. The technocrat leader said his economic policy, and not just a European Central Bank backstop, has helped lower Italy’s 10-year borrowing costs by more than 250 basis points since he came to power 13 months ago.

Monti’s decision comes weeks after former Prime Minister Silvio Berlusconi reversed a decision to stay out of the race, before offering to stand aside if Monti would lead a coalition of “moderates.” Berlusconi is now campaigning against the Monti government, and both of them are seeking to combat surging support for anti-austerity, comic-turned-politician Beppe Grillo.“It’s the most unpredictable election probably in the entire postwar period,” Federigo Argentieri, a political science professor at John Cabot University in Rome, said in a Dec. 23 telephone interview. “It’s not clear at all.”

USD

US President Barack Obama has cut short his holidays in Hawaii and is flying to Washington to try to reach a deal to avoid the so-called fiscal cliff.
Unless a compromise is found, tax increases and huge spending cuts come into force on 1 January, threatening to tip the US back into recession.However, Democrats and Republicans are still at loggerheads over the issue.

Meanwhile, the US Treasury has announced measures to prevent it hitting a legal limit on its borrowing.

As you can imagine the markets have been fairly stable over the Christmas period, however the unpredictability of it still looms. Big moves will be severely impacted by the lack of liquidity in the market as a large proportion of traders will be making the most of the break, meaning that significant volatility can be a result of lower percentage moves.

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Written by Tom Tong

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