In the absence of top tier economic data, both European and U.S Session continued to focus on the looming insecurities both sides of the Atlantic.
The debate raged on between Democrats and Republicans with the so-called ‘super committee’ failing to bridge the impasse on how to cut 1.2 Trillion from the budget deficit over a 10 yr. period. The committee was meant to have a proposal today and a deal announced tomorrow. If these cuts cannot be enacted there is a fear that a further downgrade to the US credit rating will occur. This speculation did little to help global stocks the all shed significant percentages with and as a result promoted US dollar and Yen strength. The bulk of the gains were made through the European session. This issue for the US economy is that these budgetary reforms really need to take place before the Fed can take further action if need in terms of a move for further stimulus.
Further Credit rating speculation also hit the Euro with Moody’s warning that France’s AAA rating is in danger as there bond yields rise as Euro Zone contagion grows. France’s deficit matched with its Banks exposure to the Euro Zone debt.
The risk-off demeanour came at the expense of risk currencies with the Aussie dollar making a break to the downside of 99 US cents. At the time of writing the local unit is buying 98.7 US cents and we expect intra-day support at 98-figure however ultimately we’re at the mercy of regional equities which could come under additional pressure during the business day.