Forex Flash: USD, the fiscal cliff and the Fed - Commerzbank

FXstreet.com (Córdoba) - Now that Greece is "off the agenda" the FX market might soon turn towards issues which could put pressure on the dollar, says Ulrich Leuchtmann, analyst at Commerzbank. "This applies for the debate about the US fiscal policy and the Fed".

"The public drama that surrounds the US 'fiscal cliff' is nonetheless considerable and is likely to increase further over the coming weeks", says the analyst. "FX traders will probably not remain completely unaffected. The dollar is already beginning to suffer as a result of the uncertainty".

According to the analyst, the major part of the upward move in EUR/USD since mid-November (from lows around 1.2700) is likely to be due to dollar weakness rather than the result of the rescue measures for Greece – "which do not exactly give cause for jubilation anyway".

Leuchtmann adds that just as important as the question of the fiscal cliff is the Fed’s possible reaction."In our basic scenario we assume that the Fed will extend its bond purchases (QE3). That would also put pressure on the dollar", he explains. "If it does not take this step but waits for the politicians to take a decision, the dollar might be able to recover in the short term. A sustainable recovery would however only be possible once the major part of the 'fiscal cliff' has been overcome".

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