The US dollar dropped to two-week lows against the major and commodity currencies amid progress in the Middle East political turmoil combined with growing doubts that the Federal Reserve will scale back stimulus in any significant way next week.
Since disappointing US nonfarm payrolls data, markets appeared to have lowered their expectations for any aggressive moves by the Federal Reserve. The greenback gained some traction on Friday as news emerged that President Obama could name former Treasury Secretary Lawrence Summers as the next Chairman of the Federal Reserve.
The euro opened the week at 1.3168 and then surged to a high of 1.3325, as investors became sceptic over early tapering by the US Fed. The single currency has completely recovered from the previous week’s drop, which was sparked by dovish comments from the European Central Bank. The currency closed the week at 1.3296.
Similarly, Sterling rose to an eight-month high against a basket of currencies on the view that a strengthening British economy will mean interest rates rising earlier than the central bank has projected. The pound gained after Bank of England Governor Mark Carney said that the British economy was gaining momentum.
He was interpreted by investors as making no attempt to temper the recent rise in short-term interest rates. Cable opened the week at 1.5630 and reached a high of 1.5838 and finally closed the week at 1.5875.
The Japanese Yen dropped dramatically against most of its major counterparts as the carry trades came back into play. Investors quickly dropped the safe-haven currency in search of higher return specifically amid progress in the Middle East political turmoil.
The USDJPY rose to a high of 100.48 as comments from President Barack Obama suggested that the possibility of military action in Syria might be derailed or even cancelled.
Gold fell to a five-week low on Friday, heading for its worst week in two months on prospects the United States would curb its stimulus soon and as fears of a US-led military attack on Syria recede. Gold closed the week at 1328.21.
The number of Americans filing new claims for unemployment benefits fell last week to the lowest level since April 2006 as work on computer systems in two states caused those employment agencies to report fewer applications.
Claims fell by 31,000 to 292,000 versus expectations of 330,000. However, the decrease in filings does not signal a change in job-market conditions because most of it was due to computer-network conversions in the two states, according to a Labour Department representative. Nevertheless, the pace of job cuts has declined since the end of last year, setting the stage for faster payroll and income growth that would help boost consumer spending.
US retail sales rose less than forecast in August as the biggest part of the economy struggled to gain momentum. The 0.2 percent increase was the smallest in four months and followed a revised 0.4 percent July gain that was bigger than previously estimated.
US Producer Price Index for finished goods rose 0.3 percent in August, better than expectations at 0.2 percent. Prices for finished goods were unchanged in July and increased 0.8 percent in June. At the earlier stages of processing, prices received by producers of intermediate goods were unchanged in August. Over the last 12 months, prices rose 1.4 percent.
US consumer sentiment fell to a five-month low in September, with Americans worried that higher interest rates would curb the housing market recovery and overall growth. University of Michigan's preliminary reading on the overall index of consumer sentiment fell to 76.8 in September, the lowest since April.
That was below August's 82.1 and the 82.0 reading economists had expected this month. Euro-area industrial output contracted more than economists forecast in July as manufacturers struggled to shake off the legacy of a record-long recession. Industrial production fell 1.5 percent from June, when it gained 0.6 percent. That is more than the 0.3 percent contraction forecast by economists. Annually, output fell 2.1 percent.
Draghi made the unprecedented vow in July, after the Federal Reserve’s signal that it may start withdrawing US stimulus pushed market rates higher globally. While European borrowing costs initially fell, they have since returned to levels the ECB head called “unwarranted.”
That supports the view of some economists that the central bank cannot stop rates rising as the 17-nation currency bloc rebounds from it’s longest-ever recession. Last week, Draghi reiterated that money-market rates are “unwarranted,” while saying that the guidance has been “very successful” in reducing volatility. He also said that the ECB is “not running out of options,” indicating that the ECB still has room to further support the economic recovery in the area.
Britain's unemployment rate fell unexpectedly in July to its lowest since late last year, adding to bets in financial markets that the Bank of England might raise interest rates earlier than it has suggested.
The Office for National Statistics said on Wednesday the rate dipped to 7.7 percent in the three months ending in July from 7.8 percent previously. That was the lowest jobless rate since September-November 2012.
In another sign of surprising strength in the labour market, the number of people claiming jobless benefits fell by 32,600 in August. Economists had expected a drop of 22,000 from July. The jobs data has taken on a new significance since the BoE, keen to encourage spending and investment, pledged last month to keep benchmark borrowing costs low as long as the ILO unemployment rate remained above 7 percent.
The Peninsula
