Forex News
November 28, 2012 @ 2:34 pm

Dollar strengthens while euro tumbles


Risk sentiment was damp today as investors saw little incentives to buy risk currencies in the aftermath of the Greek debt deal and the looming US fiscal cliff.

 

Optimism ahead of the Eurogroup meeting and IMF to conclude the Greek debt deal quickly dissipated as investors reacted in a classic “buy the rumour, sell the fact” scenario, which lifted euro to a one-month high above $1.30 in early Tuesday trading and subsequently dropped  almost 1 percent since then.

 

Also weighing on risk currencies is the uncertainty over the US fiscal cliff as talks between US lawmakers have made little progress on nearing a solution to avert $600 billion worth of tax increases and spending cuts to kick in early next year. Such a scenario would risk pushing the US economy into a deep recession again.

 

The dollar rallied against risk currencies today due to the risk off environment, while the safe haven Japanese yen gained. EURUSD is back below $1.29 while GBPUSD fell below the key $1.60 level.

 

Gold suffered heavy losses because of the firm dollar since the two have an inverse price relationship. Gold prices have reached as low as $1,706 in early New York trading on Wednesday, tumbling $35.

 

Despite recent strong US economic data showing an improvement in the US economic recovery, the market is worried that a stalemate on Capitol Hill could render the pick-up in economic data meaningless. There is just little over a month before the US goes over the fiscal cliff edge so to speak, so headline risk will be heightened over the coming weeks.

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