Smoothing Over the Cracks

The cracks remain. Albeit cracks of ever decreasing size. President Obama and US House Speaker John Boehner are yet to come to an official agreement over necessary tax hikes and spending cuts, required if the US economy is to avoid falling off the fiscal cliff, however both sides are now beginning to make concessions.

Yesterday saw the most progress made regarding the fiscal cliff since talks began. Much of the discussion has centred around tax rate increases on high income earners. President Obama had initially favoured higher tax rates taking effect on incomes starting at $250,000, whilst Mr Boehner was closer to the $1,000,000 mark. Both parties are now moving closer to the middle of these two figures, however no firm agreement has been reached just yet.

Markets are again relatively flat this morning with only GBP/USD slightly changed, having increased to 1.6220, continuing its advance from late last week where it broke through a key level of resistance at 1.6124. UK inflation data has been released this morning, with the UK Consumer Price Index (YoY) figure hitting 2.7%, marginally surpassing market expectations of 2.6%. This could spark some movement in Sterling, however markets are again expected to be most responsive to any news concerning talks in the US. After the progress made yesterday regarding the fiscal cliff, and a deal being reached before the January 1st deadline looking more likely than at any other time previously, we could well see the Greenback weaken across the board today.

Mark Webster