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Lawmaker impasse causes dollar to surge

TradingPub Admin | December 21, 2012

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If trading currencies is your thing, keeping track of the latest market news is a must, and the U.S. dollar pushed higher on December 21 as Washington lawmakers failed to make more progress in their budget disputes.

Economic Turmoil 
Reuters reports that many investors fled to the safe haven status of the greenback after the voting failure increased their concerns that the economy may face significant challenges due to fiscal tightening.

Markets were impacted the day before, as the failure of House Speaker John Boehner to rally support from lawmakers in his own party made investors fearful that the United States was at a higher risk of going over the fiscal cliff - meaning that their inability to solve their budget disputes would cause more than $600 billion worth of automatic tax increases and spending cuts to become effective on January 1.

The Wall Street Journal reports that the U.S. dollar extended these gains after House Republican leaders were not able to muster the votes needed with their own caucus later on December 20 to approve legislation that would have increased taxes on high wage earners.

"The fiscal cliff is a real threat not just for U.S. growth next year, but for the outlook for global growth. As a consequence, safe-haven assets are likely to perform well on the back of last night's news," Jane Foley, senior currency strategist at Rabobank International in London, told the news source.

Rising Dollar 
Reuters reports that as a result of the uncertainty generated by the failure of these attempted negotiations, investors have been shunning currencies tied more to economic expansion - such as the euro and Australian dollar - for the safety of the greenback.

"Ranges have been pretty tight and most of what happened overnight continues to dominate through the thin holiday conditions," Brian Daingerfield, currency strategist at Royal Bank of Scotland in Stamford, Connecticut, told the news source. "Despite the stronger-than-expected U.S. data, we have seen that risk appetite has not been able to rally back and that can be attributed to the overhang of the fiscal cliff."

The media outlet reports that the greenback was trading higher against a basket of currencies of six peers, as the ICE Dollar Index increased 0.39 percent to reach 79.575. The 17-nation euro fell against the greenback, as the common currency was trading 0.45 percent lower at $1.3182, a two-week low.

This may be a period of prolonged uncertainty, as Jane Foley, senior currency strategist at Rabobank International in London, stated that "the fiscal cliff is a real threat not just for U.S. growth next year, but for the outlook for global growth. As a consequence, safe-haven assets are likely to perform well on the back of last night's news."

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