Mixed performance in the FX market last week, as major currencies gained against the US Dollar, after Fed Chair Janet Yellen seemed dovish during her speech last Wednesday. The Federal Reserve Chairman stated that the central bank would keep interest rates low, even when the economy recovers. Yellen added that “the length of time the Federal Reserve keeps its key interest rate near zero will depend on how far the US economy remains from the central bank’s employment and inflation goals, and how long it will likely take to meet them”. The US Dollar fell against most major currencies following the dovish remarks by Janet Yellen, but following better than expected economic data, the greenback recouped some of its losses in the FX markets.
The Euro started the week at 1.3885, gaining only slightly, only to drop significantly after ECB President Mario Draghi, said that “a further appreciation of the currency would trigger more monetary stimulus”. The single currency fell to touch a low of 1.3791. The EUR started to regain from its drop, pushing higher ahead of Fed Chair speech. Following Yellen’s conference, the Euro hiked against a weaker US Dollar to touch a high 1.3865, only to erase those gains after better than expected data surfaced in the United States. The single currency ended the week at 1.3813.
The Sterling Pound endured a solid performance against the US Dollar. The Pound opened at 1.6733, falling to a low of 1.6661, ahead of the inflation data. The Pound then erased its losses, approaching a 4-year high, as the country’s jobless rate fell below the 7 percent threshold that Bank of England Governor Mark Carney has set under the first stage of his forward guidance policy. The GBP touched a high of 1.6842. At the end of the week, Cable eased against the greenback, to close at 1.6794.
The Japanese Yen was one of the biggest losers last week, as it weakened more than 100 basis points against the greenback. The currency opened the week at 101.62, acting as a safe haven, the JPY gained slightly on Ukrainian tensions. The Japanese Yen then fell as orders were triggered ahead of the Fed Chair conference. Following Yellen’s speech, the Yen gained against a weaker USD. The trend was reversed quickly, as stronger than forecasted US data boosted the US Dollar higher, to touch a high of 102.57. The Japanese Yen ended the week at 102.43.
The Swiss Franc followed suit with the Yen. The Franc opened the week at 0.8785, weakening against the USD and EUR, as Swiss National Bank President, Thomas Jordan, stated that “the cap on the Franc versus the Euro will remain in place in the foreseeable future” adding that the SNB “will enforce the minimum exchange rate”. The CHF continued to decline, after the US Dollar surged with better economic data. The CHF ended the week at 0.8835.
Retail sales in the US soared in March, as temperatures become warmer, prompting Americans to purchase more goods for the summer. While the winter chill faded away, more shoppers who were held back by the freezing temperatures unleashed their demand for new goods. The surge in sales came too late to boost economic growth in the first quarter, but will thrust a rebound in the second quarter.
The Federal Reserve Bank of Philadelphia’s Manufacturing index surged in April, suggesting a return to growth following weather related slowdown. The Philly Fed Index surged to 16.6 this month, after it rebounded in March from a drop below the 0.0 mark for the first time in 8-months in February. The figure exceeded most economists’ forecasts as the survey stood at only 10.0. It is the strongest reading since last September.
Number of Americans filing for unemployment benefits held near the lowest level in almost 7-years, showing that the world’s largest economy is increasing the pace of growth. Jobless claims rose by only 2,000 to 304,000, but lower than the forecasted 315,000. The slowdown in dismissals is due to the reason that companies are preparing for a rise in sales as the economy gains momentum.
German investor economic expectations fell in April for a fourth consecutive month, a sign that the recovery for the German economy is burdened by the tensions in Ukraine and an economic slowdown in China, which threatens trade, posing a risk to the continents’ powerhouse. Moreover, a Euro-area recovery may also be restrained by a strengthening currency that depresses prices and hurts exports. While German economic growth in the fourth quarter exceeded estimates, increasing tensions over the Russian stance against the Crimean peninsula, and flat performance by Euro-area countries, Germanys’ biggest trading partner, is damping the country’s output, signalling uncertainty in the European economy.
The United Kingdoms’ unemployment rate unexpectedly dropped to a 5-year low in February, emphasizing the strength of the economic recovery and raising the prospect of an interest rate hike sooner than previously signalled by the Bank of England. The jobless rate dropped more than economists forecasted to 6.9 percent in the three months through February, from 7.2 percent in the three month through January. Expectations were set for a decline to 7.1 percent. A factor behind the latest plunge in unemployment was a jump in the number of self-employed people, which hit a record high. The Bank of England said in last August that it would start thinking about raising the record low interest rates, when the unemployment rate reaches 7 percent. After the unemployment rate started to race towards that level, the Bank of England updated its forward guidance.
Gold fell dramatically last week, as signs that the US economy is increasing its pace of recovery, curbing demand for the precious metal. Consumer confidence rose, unemployment claims near 7-year lows, and Philly Fed factory index exceeds estimates, all gave investors a breath of relief on the economic situation, and increasing the risk appetite. Gold dropped since the beginning of the week from a high of 1,331.20 to a low of 1,288.44 USD per ounce, a 1.83 percent drop.
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