Cliff Interrupts Calm
S&P500 futures suddenly dropped 3.3% overnight sparking a wider risk selloff in FX. AUDUSD fell 30 pips, and both EURUSD and USDJPY fell 40 pips a piece. Headlines on the US fiscal cliff seemed to trigger the move. Boehner suddenly dropped the idea of asking the House to vote on a Republican plan to avert the fiscal cliff. It seems the plan would have failed to pass by a margin of a few votes, and so a decision was made not to proceed with it. The headlines looked worse than they were however – after all the plan was doomed to begin with given Democrats had already decided not to put it to a vote in the Senate, and US President Obama had already threatened to veto it if necessary. The nervous market reaction was justified to some degree however, given it illustrates just how difficult it will be to reach a compromise solution before year-end. The overnight antics are probably a taste of things to come over the next week or two – brace for higher volatility until a benign outcome emerges.
Click here to read the full report: UBS Morning Adviser Europe
UBS Investment Bank