The FX market witnessed a volatile week, misleading investors towards its direction. In the US, lawmakers have reached an agreement on Tuesday that, if approved by the House and Senate could ease concerns over the country’s hectic budget process and avoid another government shutdown on Jan. 15. The government was partially closed from October 1 to October 16 after a battle over Obamacare held up passage for a measure to fund the government. The budget deal calmed the political gridlock in Washington, only to raise uncertainty over the equally volatile issue, the debt ceiling, the nation’s borrowing limit. Across the Atlantic, Bank of England Governor, Mark Carney, delivered an optimistic speech on Monday, stating, “News from the UK is positive”, adding momentum to the Pound.
On the FX markets, the Euro opened the week at 1.3706, rising steadily to touch the weeks high of 1.3811, as economic figures from the United States sparked a risk-on mode for investors, while economic data from France and Italy exceeded forecasts. The single currency then dropped significantly on Thursday, as retail sales in the US outperform, sending the US Dollar higher against the Euro. The Euro continued to fall as stops were triggered, to reach 1.3740. The single currency dropped sharply on Thursday, after an ECB Board Member stated that “given these financial stability challenges, a risk of the hands of central bankers will be trembling,” adding “that they will hesitate”. The Euro ended the week at 1.3745. The Sterling Pound started the week positively, as it opened at 1.6368, rising towards the middle of the week to a high of 1.6466, breaking major resistance levels, amid speculation that the Bank of England might raise the benchmark interest rate in the near future, as the country produced a streak of good economic figures, beating economists’ expectations. In response to the speculation, BoE Governor Carney stated that “Britain’s recovery will need to be sustained for a while before it is strong enough to withstand higher interest rates”. The Pound lost ground against the greenback, as a complete absence of tier one data releases in the UK has afforded investors the time to reflect on Britain’s current geo-political problems. Cable continued to drop against the US Dollar, as speculation that the currency’s hike to reach a 2-year high was extreme, giving back its recent gains. The GBPUSD closed the week at 1.6300. The Japanese Yen had weekend significantly, reaching its lowest level since October 2008. The JPY opened the week at 102.91 only to fall against the greenback, breaking major technical levels, as the yield spread between US Treasuries and Japanese government bonds approached the widest since April 2011. The USDJPY broke past this years’ high on May, to touch a low of 103.92 as the prospect of Fed tapering strengthened the USD, combined with continued monetary easing by the Bank of Japan. The Japanese Yen closed at 103.25. The Australian Dollar continued to tumble against the US Dollar, as the Reserve Bank of Australia Governor, Glenn Stevens, mentioned that a weaker currency is preferable to lower interest rates to help spur the economy. The Aussie opened the week at 0.9103, pushing higher only slightly to the weeks high of 0.9167. The Australian Dollar then dropped sharply to touch a low of 0.8910, to close the week at 0.8964.
Retail sales in the US rose in November by the most since September 2012, a sign that consumer spending is emerging from a slow third quarter. The 0.7 percent gain followed a revised 0.6 percent increase in October, which was larger than first reported. The increase exceeded the expected 0.6 percent rise. The American consumer sponsored the strengthening in retail sales growth as gains in wealth from higher stock and property values, along with an improving job market, that rejuvenated the Americans’ state of mind ahead of the holiday seasons. Internet retailers, electronics and furniture vendors showed solid performances during the 4th quarter thus far.
Europe
German industrial
production falls
German industrial production index fell unexpectedly for a second month in October, a sign that Europe’s powerhouse is enduring an uneven recovery. The Industrial Production output fell by 1.2 percent, after a drop of 0.7 percent in September. Expectations were set for 0.7 percent increase. On the other hand, production rose by 1.0 percent from a year earlier. The hardship on Germany is its reliability on its own domestic demand, as the country’s’ biggest trading partner, the Euro area, are enduring weaknesses on their own, raising the growth risk for Europe’s largest economy.
United Kingdom
BoE Governor Mark Carney speaks
Bank of England Governor, Mark Carney, gave speech on Monday, praising the performance of the British economy. The lately elected governor has stated that “inflation has fallen, from more than 5 percent in 2011 to 2.2 percent now” and that “jobs are being created at a rate of 60,000 per month, and growth is – for the moment – the strongest in the advanced world”. The BoE Governor has stated that there are three main drivers of the economic recovery the United Kingdom; “a marked reduction in extreme uncertainty, significant progress on repairing the core of the financial system, with risk-weighted capital ratios doubling in recent years, and a marked improvement in household balance sheets, where debt to income ratios has fallen by about 30 percent”. The Peninsula
