Dollar Trades Mixed, Declines Against Euro

The U.S. Dollar traded mixed and declined against the euro as fears over the looming fiscal cliff continued to affect market sentiment. According to sources, Republican lawmakers have proposed cuts in Medicare as well as in tax reforms; however, negotiations came to a standstill as the administration rejected the measures because they do not adhere to the “fairness test.”

On the economic data front, a release indicated that ISM Manufacturing in the New York area climbed from 45.9 to 52.5. Investors will continue to follow fiscal cliff talks as they await the announcement of ADP Employment Changes due out today. Meanwhile, the Canadian dollar advanced versus its U.S. counterpart after the Bank Of Canada opted for leaving the costs of borrowing money unchanged. According to the bank’s Governor, Mark Carney, the country’s economy is predicted to expand in 2013 even after interruptions in energy output and the overall reduction in global demand.

The euro rallied versus the U.S. dollar as market investors continued to worry over the impasse between President Barack Obama and lawmakers regarding the fiscal cliff. The shared currency strengthened as investors viewed Greece’s plan to buy back government debt with optimism, and as E.U. Finance Ministers proceeded to meet in order to discuss the supervision of the region’s banks. However, sources reported that France and Germany disagreed on the idea of having the European Central Bank become the overseer of the plan.

The British pound gained against the U.S. currency as speculators remained hopeful that the U.K.’s economy would stay on the recovery path despite lackluster reports showing Construction PMI poster lower than anticipated. Also, the British Chamber of Commerce reduced its growth forecasts.

The yen benefitted from risk aversion in the market as fears over the looming fiscal cliff intensified. The most recent news indicate that President, Barack Obama and lawmakers have not been able to come to a consensus on how to avert the $600 billion in budget cuts and tax hikes due to go into effect in 2013. The yen continued to gain versus its U.S. counterpart after a release confirmed that China, a main export partner of Japan, posted an expansion in its Manufacturing sector.

Lastly, in the South Pacific, the Australian dollar traded at a three-day high versus the greenback after the Reserve Bank of Australia reduced the costs of borrowing money by 0.25 percent, and as investors became optimistic Greece and Spain will find the way to resolve its financial issues. The New Zealand dollar also advanced versus the greenback on signs suggesting that Spain and Greece are tackling their debt woes.

EUR/USD- France and Germany Don’t Agree
The euro region’s Finance Ministers continued discussions regarding the supervision of the area’s banks. However, according to sources, France and Germany disagreed on having the ECB take on this role. Meanwhile, sentiment improved in the market benefitting the shared currency after Greece unveiled its plan to buy back its own debt from investors at a much lower rate, a move that will allow the country to reduce its debt in order to meet the requirements to obtain the next bailout installment.

On the data front, reports indicated that Consumer Prices went from 2.7 to 2.6 percent in October and PPI MoM rose 0.1 percent which is better than forecast. In other news, Spanish bond yields declined after Madrid made a formal request to obtain financial aid in order to fund its banking sector.
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GBP/USD- Investors Show Faith In Sterling
The British pound traded close to a one-month high against the U.S. dollar as sentiment was bolstered by optimism the euro region is making progress in its efforts to stem the debt crisis. However, the sterling’s gains were limited as investors grew concerned the U.S. may not be able to avert the fiscal cliff.

Despite the weak data which showed that Construction PMI went from 50.9 to 49.3, market investors remained hopeful the U.K.’s economy will stay on the recovery path, despite comments by the British Chamber of Commerce lowering the growth forecasts from 2.2 to 1.0 percent and suggesting that Gross Domestic Product may only advance 0.1 percent in the last quarter of the year.
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USD/CAD- BOC Leaves Rates Unchanged
The Canadian dollar gained against its U.S. peer after the Bank of Canada announced it will leave the costs of borrowing money at 1.0 percent. Commenting on the bank’s actions, Governor Mark Carney indicated that the bank expects the Canadian economy to continue expanding in the coming year even through it was affected by disruptions in energy output and a lower global demand which affected its growth.
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AUD/USD- RBA Cuts The Rate
Australia’s dollar gained against the greenback after the Reserve Bank of Australia lowered the benchmark interest rates by 0.25 percent from 3.25 to 3.0 percent. The RBA had left the rate at a 50-year low after the 2009 world recession affected industries like tourism and manufacturing. On the data front, reports indicated that Building Approvals fell less than anticipated in October. Official figures indicated that they went from 9.5 to 7.6 percent.
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Today’s Outlook
Today’s economic calendar shows that the E.U. will report on Services PMI and on Retail Sales. The U.K. will release Services PMI. The U.S. will announce data on MBA Mortgage Applications, ADP Nonfarm Employment Changes, Non-Farm Productivity, Unit Labor Costs and the ISM-Non Manufacturing Index. New Zealand will publish the Interest Rate Decision and the RBNZ Rate Statement. Lastly, Australia will issue information on Employment Changes and the Unemployment Rate.