The U.S. dollar is trading lower against all of the major currencies this morning as investors wait for more headlines out of Washington. Congressional leaders are meeting with the President in the White House today and he has promised to put a forth a new deal that will hopefully gain more support from Republicans. While stocks are trading lower this morning, we do not rule out another sharp reversal similar to Thursday on fresh signs of progress. U.S. lawmakers are running out of time and with no major sign of concession from Republicans, the uncertainty should keep volatility elevated. Over the past week, the VIX climbed to its highest in 5 months and the increase in volatility is rarely good for currencies. The anxiety in the financial markets and the sell-off in stocks may finally be hitting the Yen crosses. USD/JPY rose to a fresh 2 year high last night but has since given up all of its gains and the intraday reversal candle points to the possibility of further losses.

Better than expected U.S. economic data failed to lend much support to the greenback. Manufacturing activity in the Chicago region accelerated for the second month in a row as the PMI index increased to 51.6 from 50.4. Unfortunately the details of the report also made the headline number less attractive. Production declined while employment dropped to its lowest level in 3 years. Pending home sales rose 1.7% in the month of November. While growth has slowed since the previous month, the housing market continues to receive support from low interest rates. Yet it won’t take long for the market to forget about today’s economic reports as all eyes are on Washington.