The US Dollar remained under pressure against all major currencies this week despite the strong data out of the US economy. Indeed, the latest drop in the USD index came despite higher treasuries yield in the US, better economic data, which both supported the speculation that the beginning of the Fed tapering would start in the month of September.
However, it is wise to keep in mind that we are in the midst of the summer trading holidays with a large number of investors currently on holidays and illiquid markets shaping the trading week.
For now, the stream of US data suggest that the odds of a September tapering are continuously increasing and the US bond and equities are suffering accordingly due to the expectation of a decrease in the money supply in the market.
On the foreign exchange side, major currencies closed the week at the highest levels seen in weeks. After opening the week at 81.12, the Dollar Index gained almost 1 percent on strong US figures; however closed the week at the lowest level since June.
The Euro had a strong week despite the better US economic data and the higher yields in the US treasuries. The Euro reached a high of 1.3380 on Friday on light summer trading, however, investors are reluctant to sell the currencies before they see what the Fed has in store during the Jackson hole at the end of August and the September Fed meeting.
The Sterling Pound was the best performer on stronger than expected data. Indeed, the currency was supported this week by the stellar job and retail sales report. The Pound closed at the highest level seen in weeks at 1.5629.
Japanese Yen traders got caught again this week on the wrong foot as the US dollar pushed higher in the beginning the week after talk surfaced that Prime Minister Abe was set to lower corporate tax rates to help mitigate any potentially negative economic effects from a likely sales tax hike. After reaching a low of 98.65, the Yen staged a comeback along with the other majors and closed the week strong at 97.50
In the commodity complex, while investors thought Gold would tumble again after the strong US data, the yellow metal exploded higher on technical trading. As trading remain illiquid lately, investors sold the metal while establishing stop losses higher than their entry point and got hit on their short positions. Gold ended the week almost $50 higher than Monday’s opening.
The continuous volatile situation in the Middle East and the positive data our of the US continue to put upward pressures on Oil prices, even with the US crude inventory coming higher than expected. Oil prices ended the week at $107.46.
Europe & UK
Europe back into positive growth
Looking at the latest economic figures out of Europe, it seems that the Euro zone has returned to growth and the worst was avoided for now. Some of the data had already showed improvement, most notably in the PMI reports released lately. Those surveys need to be backed-up with better activity data in order to sustain the Euro strength. As GDP has been negative for six consecutive quarters through Q1 of this year, this week’s GDP broke the trend and showed a modest improvement for the first time this year.
According to the German press, the German opposition parties accused Chancellor Angela Merkel of lying before elections next month about the risks of a new bailout for Greece. German newspapers also quoted an internal document prepared by the German central bank as saying that Europe “will certainly agree a new aid programme for Greece” by early next year at the latest. The Bundesbank, which declined comment, also described the risks associated with the existing aid package for Greece as “extremely high”, according to the report, and said the approval last month of a ¤5.8bn aid installment to Athens had been “politically motivated”.
UK beating expectations
The Unemployment in the UK held in the second quarter at 7.8 percent, but the outlook brightened as jobless claims fell almost twice as fast as expected and the number of people in work hit a record high. Jobless claims declined by 29,200 to 1.44 million in June, taking the rate to 4.3 percent, the lowest since February 2009 and the number of people in employment rose by 69,000 in the three months to June to a record 29.78m, compared to the three months to March. On another front, retail sales in the UK rose at their fastest annual rate in over two years in July jumping 1.1 percent on the month almost twice more than expected to give an annual rise of 3 percent, the highest since Jan 2011.
Asia
Australia’s situation remains messy
Between budget issues, business confidence slowing and housing boom exploding, the situation in Australia seems to constantly worry investors from returning back to the market.
Reports out of Japanese newspapers quoted Japanese Prime Minister Shinzo Abe looking at the option of cutting the nation’s corporate tax rate, although the idea is still in its early stages with a number of hurdles ahead.
The corporate tax cut would be a way to cope with any negative economic fallout from a planned sales tax hike scheduled to take effect next year. According to the report, Mr. Abe had instructed related ministries to look at the implication of such a move before proposing it to the parliament.
According to the China Banking regulatory Commission, Chinese banks’ bad loans rose for a seventh straight quarter during the April-June period. Non-performing loans climbed by 13 billion Yuan in Q2, reaching 539.5 billion Yuan. It does not seem that this fact has caused any concern to investors as the central government has already demonstrated its willingness to funnel massive fiscal reserves through four state-owned banks to avert such a crisis.
The Peninsula
