Federal Reserve Chairman Ben Bernanke stated last week that the central bank is committed towards the easing policy for as long as needed, adding that the Fed will only begin to taper the bond-buying programme after assurance that the labour market improvements will continue. Chairman Bernanke has said, “While the economy had made significant progress, it is still far from where officials want it to be”. The Chairman added, “That the surest path to a more normal approach to monetary policy is to do all we can today to promote a more robust recovery”.
On the other hand, the Federal Open Market Committee (FOMC) meeting minutes stated that officials “might reduce their $85bn in monthly bond purchases in the coming months as the economy improves”. The minutes showed that policy makers “generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labour market conditions and would thus warrant trimming the pace of purchases in coming months”. The FOMC face the dilemma of when and how to reduce the quantitative easing programme, without causing a rise in interest rates that could hinder economic growth and diminish the gains of the labour market.
On the FX markets, the Euro opened the week at 1.3496, rising steadily to touch the weeks high of 1.3579, as economic figures from Europe’s powerhouse, Germany, signalled optimism in the Euro area, backed by dovish comments from the Federal Reserve Chairman Ben Bernanke. The single currency dropped significantly on Wednesday, as talks surfaced that the European Central Bank is considering a negative deposit rate for commercial lenders who park excess cash at the ECB to minus 0.1 percent. Members of the ECB have stated that negative rates is a “potential tool” for sustainability.
The news pushed the Euro to a low of 1.3400. The euro managed to reverse its trend, gaining all the way up to 1.3527 against the dollar, after better than expected German Ifo beats estimates. The euro ended the week at 1.3558. The Sterling Pound enjoyed a positive week, as it opened at 1.6118, rising towards the middle of the week to 1.6178, amid speculation that the Bank of England might raise the benchmark interest rate. The pound dropped after the minutes from the BoE disappointed investors. Cable regained all its losses as UK data continues to outperform. The GBPUSD closed the week at 1.6226.
The Japanese yen had weakened significantly, sustaining the 100 barrier. The JPY opened the week at 100.19, dropping below the 100.00 mark only slightly, as the USD deteriorated. The yen then fell against the greenback, breaking major technical levels, as orders from crosses with the EUR and GBP trigger a sell-off. The USDJPY broke past the 101 mark for the first time since July, as monetary policy talks in both countries widened the gap between the two countries’ bond yields to the biggest since September. The Japanese Yen closed at 101.27.
The Australian dollar endured a tough week, as it opened at 0.9369, rising to a high of 0.9448. The Aussie then crumbled to touch a low of 0.9157, as the Reserve Bank of Australia Governor stated that the central bank is “open-minded” about intervening to weaken its currency. The Australian dollar ended the week at 0.9183.
Retail sales in the US rose in October by the most in 3-months, a sign that the US Government shutdown had minimal effect on consumer spending, ahead of the holiday season where shopping peaks. The 0.4 percent gain followed a 0.1 percent decrease in September, and exceeding expectations by 0.3 percentage points. The American consumer sponsored the strengthening in retail sales growth as they snapped up goods such as furniture and cars, while others were preparing for the holidays, buying up electronics and clothes. The figures boost the holiday sales outlook for retailers, signalling that consumer spending, that accounts for almost 70 percent of the economy is picking up from a third quarter slowdown.
Sales of previously owned American houses unexpectedly dropped more than forecasted last month to the lowest level in 4-months, as the higher mortgage rates and limited supply hindered the housing market recovery. Purchases of existing houses dropped by 3.2 percent, to 5.12 million homes, the lowest level since June. The figure came lower than the forecasted 5.14 million, and significantly lower than the previous months’ figure of 5.29 million. The increase in borrowing costs amid expectations that the Federal Reserve will soon taper the economic stimulus, ignited concerns in the housing market, slowing the recovery.
The Peninsula
