US Dollar Loses, Even As Fiscal Cliff Talks Thaw

The US dollar continued its recent bout of weakness against major currencies in the US morning trade, even as an impasse between US political leaders showed some signs of breaking down. Economic data remained bearish for the world’s largest economy, lending to the day’s decline.

Fiscal Cliff Thaws

It seems that Republican stances are softening as the clock ticks down to the New Year, and the US approaches the activation of the Fiscal Cliff. In the newest round of discussions, Republican leaders led by House Speaker John Boehner have conceded to allowing a tax rate increase of earners making a minimum of $1 million. The tax rate for income in that range would increase from 36% to 39.5% under the concession.

In addition, Republicans have offered to table the $16.4 trillion debt ceiling discussion for one year. The debt ceiling debate would likely emerge early next year without any deal, sparking concern and speculation of a government shutdown.

The concessions have done little to support the greenback as the Obama administration continues to press forward with its objective of raising tax rates for the top 2% of income earners – rejecting recent Republican concessions.

China, Japan Increase Holdings

Global investors awaiting the outcome of the Fiscal Cliff discussions are pulling back on investing in US based assets, according to the most recent long term Treasury Department report. Taking a look at the Treasury International Capital survey, net purchases of long term US assets totaled $1.3 billion for October. This is a sharp decline from the $3.2 billion in September, and far below expectations of a $24.3 billion net increase anticipated by market analysts.

The decline additionally seemed attributed to a drop in buying interest as the European debt crisis abated, prompting a pullback in spending by foreign investors ahead of the holiday season. Nonetheless, both China and Japan added to coffers, with both countries still vying for the top spot – as China remains the biggest foreign owner at $1.16 trillion in Treasuries.

Empire Manufacturing Sinks

According to the New York Federal Reserve Bank, manufacturing activity declined in the Northeastern region for the fifth consecutive month. Survey results showed a -8.1 in the month of December, a follow up to the -5.2 in November, and a drop compared to market estimates of a +5.2 print. Subsequently, report details pointed to slower growth in the short term for the region as both new orders and shipment readings dipped, while employment signals remained sluggish.
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