The dollar sank on pessimistic comments over the weekend about the prospects for a settlement.
• Confusing market today: recently, concerns about the US fiscal cliff have been bad for stocks and other risky assets and good for the dollar. Today however the dollar sank on pessimistic comments over the weekend about the prospects for a settlement.
• Similarly, Asian stocks were mostly higher on news that China’s official Purchasing Manager’s Index (PMI) rose in November, yet the AUD – often seen as a proxy for Chinese growth – slipped in another divergence from the usual “risk on/risk off” trade.
• In fact, G10 currencies are now the least correlated with measures of risk tolerance that they’ve been since the financial crisis began in 2007. This is good news for traders, since less correlation means more opportunities for picking currencies based on individual countries’ fundamentals and more opportunity to build a diversified portfolio of trades.