The US Dollar dropped against its major counterparts as comments from the Federal Reserve’s newly appointed Chairman, and the Bank of England eased market concerns and drove investors towards riskier assets. Stocks and Treasury yields climbed as Yellen, delivering her first public remarks as Fed chairperson, said financial-market turmoil does not pose a major risk to the outlook for the US economy and repeated the Fed’s statement that asset purchases are not on a “pre-set course.” The Dollar Index reached a high of 80.83 ahead of the comments. The index quickly dropped following the testimony, which initiated the risk on trade in the market pushing the US dollar lower against its major counterparts.
The euro started the week at 1.3625. The common currency suffered a setback at mid-week on dovish comments from European Central Bank Executive Board member Benoit Coeure who said that the idea of the ECB's overnight deposit rate cutting into negative territory was "a very possible option". The statement pushed the Euro to its week low 1.3561. However, the Euro gained traction on Friday as GDP figures from Germany and France beat market expectations and pushed the currency to reach a high of 1.3713 and close at 1.37XX.
Similarly, the Sterling Pound surged against the greenback after the Bank of England upgraded its growth forecasts, issued new forward guidance, and hinted at rate hike in 2015. Towards the end of the week, he currency continued to benefit from the upbeat inflation report and reached a high of 1.6715 and then closed he week at 1.67XX.
The Japanese Yen opened the week at 102.61, the currency range traded for the most part of the week between 102.20 and 102.60. The USDJPY then dropped to a low of 101.65 amid a disappointing Retail sales figure and closed the week at 101.XX.
The Australian dollar reached a one-month high as positive Chinese trade data eased concern about China's economy. China's trade performance overcame forecasts in January as import growth hit a six-month high, confounding market expectations and lifting the Aussie to a one-month high of 0.9068. However, the Aussie fell sharply to reach a low of 0.8924 after an unexpectedly weak employment report, raising the possibility of another rate cut by the Reserve Bank of Australia. On Friday, the currency recouped most of its losses and closed the week at 0.90XX.
Federal Reserve Chairman Janet Yellen pledged to maintain her predecessor’s policies by scaling back stimulus in “measured steps” and signalled that the bar is high for a change in that plan. “I am committed to achieving both parts of our dual mandate: helping the economy return to full employment and returning inflation to 2 percent while ensuring that it does not run persistently above or below that level.”
Retails sales fell unexpectedly in January, and another gauge of consumer spending also slipped. Sales fell 0.4 percent last month, led by a drop in automobile sales. Sales fell by a revised 0.1 percent in December. Economists polled by Reuters had forecast retail sales would be unchanged in January after rising by a previously reported 0.2 percent in December. Stripping out automobiles, gasoline, building materials and food services, the so-called core sales fell 0.3 percent after rising by a downwardly revised 0.3 percent in December.
The number of Americans applying for jobless benefits rose higher than expectations in the market, underscoring the uneven progress in the labour market. Jobless claims increased by 8,000 to 339,000 from 331,000 in the prior period. Fewer dismissals are needed before hiring can accelerate and provide a bigger boost for consumer spending in the world’s largest economy.
The US Reuters/Michigan Consumer Sentiment Index unexpectedly remained flat at 81.2 from the previous month, better than market expectations for a drop to 80.6. It signalling that Americans may need to spend for a longer period to accelerate growth and confidence.
Falling production of energy and capital goods curbed Eurozone industrial production more than expected in December, underlining the fragility of the area's economic recovery. Industrial output in December 2013 fell 0.7 percent on the month, after a downwardly revised 1.6 percent rise in November. The decrease was driven mainly by a 2.1 percent fall in output of energy and capital goods, with production of nondurable consumer goods down 0.1 percent against November.
French gross domestic product for the fourth quarter of 2013 surprised on the upside and so did GDP numbers from Germany for the same period. In France, fourth quarter GDP grew by 0.3 percent compared to expectations of a 0.2 percent growth. The German economy continued its moderate growth at the end of the year. In the fourth quarter of 2013, the gross domestic product rose 0.4 percent on the third quarter of 2013 after adjustment for price.. In the two previous quarters, too, the German economy had grown by 0.7 percent and 0.3 percent, respectively, following stagnation at the beginning of the year.
Sterling surged after the Bank of England upgraded its growth forecasts, issued new forward guidance, and hinted at rate hike in 2015. The BoE upwardly revised the final quarter of last year’s GDP growth to 0.9 percent from 0.7 percent. They also stated that the pace of expansion would be similar in Q1, while GDP estimates for the full year were raised to 3.4 percent from November's 2.8 percent estimate. The central bank indicated that it expects the economic recovery to be "more entrenched and more broadly based". On inflation, the BoE stated that "the existence of spare capacity in the economy is both wasteful and increases the risk that inflation will undershoot" the central bank's 2 percent target in the medium-term. The BoE forecasts inflation would ease to as low as 1.7 percent in the Q2 2015 before gradually accelerating to 1.9 percent going into the year 2016.
Australia’s unemployment rate climbed to the highest level in more than 10 years in January, that fuelled the expectation of a further rate cut sending the Aussie to its biggest drop in almost three weeks. The unemployment rate rose to 6 percent from 5.8 percent. The market was expecting an increase to 5.9 percent. Another measure showed that the number of people employed fell by 3,700. The softer-than-expected jobs report hindered expectations that the Reserve Bank of Australia will turn to tighter policy following a surge in property prices, rising building approvals and a forecast acceleration in growth and inflation. The Peninsula
