Volatility continues to overwhelm the FX markets as the uncertainty over the US Job report added more speculation on whether the Fed will start unwinding its QE programme. In the past few weeks, the market was bullish on the US Dollar on the belief that positive data would prompt the Fed to unwind some of its $85 billion monthly purchases. However, disappointing manufacturing figures joint with a disappointing ADP report raised concerns that the Non-farm payrolls might upset the market, which pushed investors to cut some of their long positions on Thursday. The USD Index opened the week at 83.27 it dropped to a low of 81.077 amid the private sector jobs data. Finally, the Index closed the week at 81.67 recouping some of its losses amid a better than expected Non-Farm payrolls figure.
The Euro gained against the greenback throughout the week as better than expected figures from the EU manufacturing sector combined with cautiousness towards the US dollar boosted the currency to an almost three-month high. Finally, on Thursday the Euro gained some momentum as the ECB President Mario Draghi the recent improvements in economic data. The Euro opened the week at 1.3000 and reached a high of 1.3304 amid the ECB meeting. Lastly, the currency closed at 1.3218.
The Sterling Pound moved in tandem with the Euro against their US counterpart. Cable also gained on the back of a series of better than expected data combined with investors unwinding their long USD positions. Last week, the BoE kept their key lending rate and asset purchase program unchanged in Mervyn King’s last meeting as Governor of the bank. Sterling opened the week at 1.5196, and soared against the greenback to a high of 1.5683. The currency erased some of its gains and closed the week at 1.5558.
The Japanese Yen gained dramatically against the US Dollar as uncertainty over the US labour market dictated trading throughout the week. On Friday, the greenback suffered its biggest intra-day drop in three-years against the Yen as investors reversed their risky trades ahead of the NFP. The USDJPY opened the week at 100.55, only to break the 100.00 psychological barrier amid a disappointing Manufacturing figure from the US. On Friday, the pair dropped below the 98.65 support level and continued to reach a 2-month low of 95.00. The JPY closed the week at 97.56. A higher Yen threatens to weaken the Bank of Japan’s stimulus efforts, which have weakened the Japanese currency, boosting up the nation’s exports.
The Australian Dollar dropped against the greenback as the Reserve Bank of Australia kept its key lending rate unchanged and opened the door for further easing. Additionally, a report showed that China’s manufacturing activity shrank in May pushing the Aussie even lower.
The currency opened the week at 0.9605 and climbed to a high of 0.9792 amid disappointing manufacturing data from the US. However, the currency lost all of its gains and dropped to a low of 0.9432 after the RBA’s decision. Finally, the currency closed the week at 0.9497.
Europe & UK
Europe manufacturing
contracts at a slower pace
Eurozone manufacturing output shrank less than initially estimated in May, proving its economy is beginning to show some life. The data supports the optimism of ECB chief Draghi predicting ‘gradual recovery’ for the Eurozone.
The Euro area Purchasing Managers’ Index (PMI) increased to 48.3 last month from 46.7 in April. It indicates that European manufacturing output is still falling, but at the slowest rate since February 2012. EU’s biggest countries such as Spain, Italy, France, Germany, and Greece saw increases.
ECB interest rate decision
The European Central Bank left interest rates unchanged on Thursday and said it had discussed a number of other policy options it could take if the Euro zone economy does not emerge from recession later this year. ECB President Mario Draghi said economic conditions did not warrant moves such as taking the deposit rate into negative territory or cutting its main rate from a record low of 0.50 percent. However, these and other unconventional options, including very long-term loans to banks, measures to fire up the market for asset-backed securities and tweaks to its collateral framework were “on the shelf”, Draghi said. Finally, Draghi pointed to some recent economic data as being better than expected and said ECB policy and exports would support a slow recovery in the euro zone economy later this year.
UK manufacturing
A strong rise in new orders helped Britain’s manufacturing sector grow at its fastest pace in over a year last month, a survey showed on Monday. The sector’s expansion for a second month running will boost optimism that Britain’s recovery is becoming more broad based and less reliant on the services sector. The Purchasing Managers’ Index rose to 51.3 in May from an upwardly revised 50.2 in April.
Australia
GDP unchanged,
lower than expected
Australia’s economy posted a second straight quarter of moderate growth as a drop in business investment offset gains in trade and consumer spending at the start of 2013, a disappointing result that only reinforced the case for lower interest rates. The Australian economy grew at 0.6 percent slower than the expected 0.8 percent.
China
Factory activity contracting in China
China’s factory activity shrank for the first time in seven months in May as both domestic and external demand softened, while growth in the services sector cooled, pointing to slowing momentum in the world’s second largest economy. The Purchasing Managers’ Index (PMI) for May fell to 49.2, the lowest level since October 2012 and down from April’s final reading of 50.4.
The Peninsula
