U.S. Dollar Strengthens on Greece Concerns

The U.S. Dollar dropped swiftly almost immediately against all major currencies after it was announced that President Barack Obama won re-election, but its losses were short-lived as it bottomed close to the European Forex opening. The break in the dollar was attributed to expectations that the Fed would continue to maintain its easy money, soft dollar policy. 

The EUR/USD rallied on the news of the Obama re-election, but the Forex pair showed limited upside because of lingering concerns over Greece. Additionally, the rise in the dollar against the Euro and other major currencies probably means that the market believes the Greenback is a safe haven against the so-called fiscal cliff. 

The fiscal cliff is a combination of major spending cuts and tax hikes that will automatically take effect early next year unless politicians reach a compromise. This condition is likely to produce uncertainty in the marketplace, but ironically should drive investors into the safety of the dollar. 

Worries over Greece are likely to curtail demand for risky assets today. This could mean renewed pressure on the Euro, British Pound, gold and crude oil. Today,Greece’s parliament is set to vote on a package of unpopular austerity measures. These include tax hikes and spending cuts which are necessary to ensure that the country receives its next tranche of financial aid from European lenders. A failure by Greece to receive the aid means the country will run out of money by the end of the month. 

The GBP/USD finished lower after some early strength failed. The rally was likely short-covering followed a prolonged down move. Nervousness about tomorrow’s Bank of England policy meeting also contributed to the weakness late in the session. Traders don’t believe the central bank is going to lower rates and ease any further, but prefer to pare positions ahead of the meeting. Improvements in the U.K. economy are the main reasons why the BoE is likely to refrain from another round of QE. 

December Gold is trying to establish a support base inside of a major retracement zone, but the mixed fundamentals are preventing it from gaining traction. The movement in the dollar is probably the best way to track gold. A weaker dollar tends to mean higher gold prices while a stronger dollar tends to lower demand for the metal, putting pressure on prices. Last night gold rallied after Obama’s victory was announced. Traders believe that the soft dollar policy by the Fed will lead to inflation which is supportive for gold. 

December crude oil traders are a little nervous about Wednesday’s supply and demand report. This report is going to take into consideration last week’s hurricane which may have had a major affect on inventory figures. Traders are looking for a rise in inventories because of the refinery shutdowns.