Dollar Lower As Stocks Rebounded On Fiscal Cliff Swing

Asia equities are broadly higher today, following the 107 pts rebound in the Dow overnight at 12985 and have 13000 level back in sight. Sentiments were lifted as US president Barack Obama said that he'd hope to get the fiscal cliff deal done "before Christmas." Meanwhile, John Boehner also expressed his optimism that lawmakers can "avert this crisis sooner rather than later." However, note that Boehner is still insistent on extending the tax cuts for the top 2%, together with the middle class, even though a respected Republican Tom Cole called for the party to give in.

There is still no clear picture on how the eventual deal would be and markets would likely remain volatile in these fiscal cliff "swings." Treasury Secretary Timothy Geithner will meet with John Boehner and other congressional leaders today.

The Fed's Beige Book suggested that "economic activity expanded at a measured pace in recent weeks." Yet, Hurricane Sandy and concerns about the fiscal cliff were key factors constraining growth during the surveyed period. While the housing market fared better, manufacturing activities weakened with 7 Districts reporting either slowing or outright contraction. Business owners explicitly stated that worries over the fiscal cliff delayed their business decisions.

In Europe, Greek finance minister Yannis Stournaras said that the bond buyback program will be launched early next week and he emphasized that "the success of the operation is a patriotic duty, it is a question of credibility" of the country. The operation is expected to be finished by December 13, before release of the next tranches of bailout fund of EUR 43.7b in four installments from December to March. Greece will need to spend around EUR 10b from EFSF to buy back around EUR 30b debt and thus, lowering the outstanding obligations by around EUR 20b.

SNB president Thomas Jordan said yesterday that the swiss franc at current level still has a "high value." And he noted that this "burdens a lot of companies -- especially in a phase of moderate global economic growth." Jordan reiterated that SNB will defend the EUR/CHF 1.2 floor "with determination and is prepared to buy foreign currency in unlimited quantities."

The floor would shield Switzerland from "major damage" but he also warned that "the minimum rate is a response to exceptional circumstances and is not a remedy for problems of any kind or an instrument to fine-tune the economy." Also, as SNB's balance sheet expanded five times since 2007, there "fluctuations in value may be much greater in the future than they have been in the past," creating "substantial risks."