Markets see a relief rally post fiscal cliff as Spanish bond yields dip beneath 5% for first time in 9 months.

Tom Tong03/Jan/2013Currency Updates

GBP

Sterling surged to a 16 month high against the dollar yesterday as riskier assets benefited from a relief rally after the fiscal cliff was averted, however gains where lost later in the day as the pair struggled to break resistance and trade a new range. We have a relatively quiet day of data releases ahead with the Nationwide house price data due for release with analysts expecting it to remain unchanged with minor improvements in the construction sector.

EUR

Amid the relief rally that hit the markets yesterday we saw a return to eurozone assets as bond yield for countries at risk of default fell whilst that for Germany and France increased. 10 year Spanish bond yields dropped to 9 month low – below 5% for the first time since March, this signalled the new found confidence that investors had in the markets. German consumer prices increased in December but PMI figures where revised down.

Nonetheless, the single currency itself was left out the risk rally despite a surge in European stocks and bonds. Today we have German unemployment numbers being released with this month threatening to be the fourth consecutive drop of in employment numbers in the manufacturing sector.

USD

At the eleventh hour on Monday evening we saw President Obama sign the fiscal cliff bill passed by Congress which subsequently caused a relief rally in the markets yesterday. However the bill has been received with mixed feelings as whilst equity traders welcome the deal, currency traders worried about the unfinished business as deal on terms for spending cuts has been postponed for a further 2 months.

There was mixed economic data out of the US yesterday with the ISM Manufacturing Index rising to 50.7 in December but Construction spending dropping to 0.3% in November. Today we see the initial jobless claims data out of the US, with this number being closely watched ahead of the Non farm payroll figures released tomorrow.

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Written by Tom Tong

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