The main event took place on Wednesday, where the Federal Reserve Bank released their meeting minutes from their July meeting. Pushing the US dollar higher against most major counterparts, the minutes of the FOMC meeting stated that some members of the Federal Reserve policy makers agreed that a change in the purchase programme “might be needed soon”, although others have emphasised the “importance of being patient”. The minutes mentioned that “a number of participants” stated that market expectations for the path of monetary policy, encompassing the asset purchase program and the expected path of the federal funds rate, “appeared well aligned with their own expectations”. Furthermore, “almost all participants confirmed that they were broadly comfortable” with the characterisation of the outlook for monetary policy. Building up on Bernanke’s statement in the previous meeting, the committee is sitting tight until they had a better read on the economy. If improvements in the economy continue, reductions in the pace of purchases might begin sometime later this year, and conclude around the mid-2014.
On to the FX market, the euro started the week on a positive note, opening at 1.3326, after Germany’s Bundesbank said the European Central Bank’s pledge to keep borrowing costs low doesn’t rule out higher interest rates to curb inflation. The single currency continued to rise to the weeks’ high of 1.3452, supported by a slide in Asian stocks and currencies forcing investors to repatriate assets from emerging markets. The euro erased its gains following the minutes by the FOMC, to a low of 1.3298 against a stronger dollar. The single currency recouped some of its losses, as stops were triggered. The currency closed the week at 1.3379. Cable opened the week at 1.5629, in line with the euro. The Pound rose against a weaker dollar, to a high of 1.5718. The Sterling Pound then dropped dramatically, reversing its gains, as technical level were reached, triggering a sell-off, to push the Pound to a low of 1.5563. A stronger dollar, following the Federal Reserve meeting minutes, aided the drop on Thursday. The British Pound then rallied on Friday, after the country’s second quarter GDP exceeded estimates, to hike the GBP/USD pair to 1.5638. Cable closed the week at 1.5569. The JPY opened the week at 97.53, strengthening against a weaker dollar at the beginning of the week. The Japanese yen rose against the dollar as a slide in Asian and European stocks fuelled demand for the relative safety of the Japanese currency. The yen dropped to a low of 96.91 per dollar. The yen then weakened against the greenback, after the FOMC showed that officials were “broadly comfortable” with a plan to start reducing bond buying later this year if the economy improves. The yen closed the week at 98.76. The Swiss franc strengthened against a weakening dollar on at the start of the week, as investors seek the safety of the currency following a drop in Asian stock, and uncertainty from the Federal Reserve minutes outcome. The CHF opened the week at 0.9265, strengthening to a low of 0.9147 against the USD. The Swiss franc then weakened, in tandem with the JPY, as the dollar surges against most majors, touching a high of 0.9290. The Swiss franc closed the week at 0.9220.
Existing home sales rise
Sales of previously owned American houses climbed more than forecasted last month as American buyers quickly completed their mortgage transactions before they rise any further. Purchases of existing houses increased by 6.5 percent to 5.39 million homes. The figure exceeded the forecasted 5.15 million, and much higher than the previous months’ revised figure of 5.06 million. Sales were at the strongest level since a government tax credit temporarily boosted demand in November 2009, the second strongest demand since March 2007.
The US new home sales plunged in July by the most in more than 3-years, while previous months were revised down, adding signs that housing market is not fully ready for higher mortgage rates. New Home sales fell 13.4 percent to an annualised rate of 394,000, the weakest level since October 2012, against a forecasted 487,000 and lower than the previous months’ revised figure of 455,000. Builders are holding back amid constraints on available land and materials in a bid to boost prices and revenue.
German PMI outperforms
German Manufacturing Purchasing Managers Index unexpectedly rose more than forecasted this month, signalling a solid increase in overall business activity, as production rose steep, and reached its strongest level since June 2011. Moreover, the service providers pointed to the steepest rise in business activity for six months, rising from 51.3 in July to 52.4 in August, a sign of hope that the eurozone is pulling out from its record long recession. The Manufacturing Purchasing Managers’ Index rose to 52.0 in August, exceeding estimates of 51.1. The figure rose from July’s figure of 50.7. A reading above 50 indicates growth, and below 50, contraction.
UK economic growth accelerated in the second quarter more than initially forecasted, supported by a balanced contribution to growth from all sectors, signalling that the British economy is gaining traction. Gross domestic product increased 0.7 percent compared with the initial estimate of 0.6 percent, and the first quarter increase of 0.3 percnet. Major support came from exports, which rose the most in more than a year, contributing 0.3 percent to the Gross Domestic Product. While risks to the economy remain, Bank of England Governor, Mark Carney, has pursued to bolster the recovery by introducing forward guidance to control investor bets on higher interest rates.
The Peninsula
