GBP USD Exchange Rate Hits 16 Month High As US Economy Avoids ?Fiscal Cliff?, GBP AUD And GBP NZD Forecasted To Tumble

Modified: Wednesday, 2 January 2013 06:54 BST - Written by John Cameron

STORY LINK GBP USD Exchange Rate Hits 16 Month High As US Economy Avoids ?Fiscal Cliff?, GBP AUD And GBP NZD Forecasted To Tumble

As 2013 gets underway, appetite for risk amongst institutional investors is showing signs of making a concerted comeback. The major factor causing market participants to shun safe haven assets and get involved in risk-laden investments once more has been the considerable progress made by US lawmakers in their attempt to avoid a potentially catastrophic trip over the ‘fiscal cliff’ for the vast American economy.

Yesterday afternoon brought the news that the US Senate had overwhelmingly voted in favour of a compromise package of tax hikes on higher earners and public spending cuts. Then late last night, it was announced that America’s lower house had rubber stamped the raft of measures, which will allow the world’s largest economy to avoid a decimating series of tax increases on middle-earners. The resounding vote in favour of the proposals, by 257 to 167 Representatives sent out a strong message to the markets that US policymakers are determined to do whatever it takes to steer the world’s largest economy away from recession.

Elsewhere, the early part of this week’s session has brought encouraging news from the Far East in the form of the latest edition of the closely-watched HSBC Purchasing Managers’ Index, which revealed that the key manufacturing sector of the world’s second-largest economy is expanding at its fastest rate since the middle part of 2011. This release builds on a series of positive data sets from China, suggesting that the pronounced softening of key indicators from the country during last Summer and Autumn may well have been nothing more than a temporary blip for the Asian powerhouse economy.

The prevailing ‘risk on’ trading environment during the first half of this week has caused the safe-haven US Dollar to give up ground against Sterling, taking the GBP USD exchange rate to its highest level since August 2011 at 1.6383. The go-ahead mood amongst investors may well cause the GBP NZD and GBP AUD exchange rates to dip as the week progresses.

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