The Federal Reserve is on track to keep its $85bn-a-month bond-buying program in place at its next policy meeting. Federal Reserve Chairman, Ben Bernanke, has been stating since May that the central bank expects to begin winding down its bond-buying program later this year, if the economy strengthens. Accordingly, the Fed intends to keep short-term interest rates near zero at least until the jobless rate drops to 6.5 percent or unless inflation rises to a 2.5 percent. While good economic numbers from the Eurozone and the United Kingdom boosted confidence in their respective economies, pushing their currencies higher, the USD is being pressured, as speculation arises ahead of the Fed meeting on the 31st of this month.
The Euro started the week on a positive note, opening at 1.3143, as worse than expected housing data in the US is putting pressure on the US Dollar. The single currency then rose to 1.3218 against its American counterpart. The Euro continued its climb against the US Dollar, after a report showed that manufacturing in the 17-nation currency bloc expanded in July, encouraging demand for the region’s assets. The market then reversed its trend, as the US Dollar gains on a rise in US yields, pushing the Euro down to 1.3165. The Euro then regained its losses and hiked all the way to 1.3297 after solid economic data that showed that manufacturing output in the Euro-area unexpectedly risen, supported by a strong consumer confidence figures from the area’s biggest economy, Germany. The single currency closed the week at 1.3279. Cable opened the week at 1.5267, only to rise after Prime Minister David Cameron stated that “an improving economy might allow the government to cut taxes,” pushing the Pound to 1.5386. The Sterling Pound then collapsed against the US Dollar, in coherence with the Euro as US Yields rise. The Pound fell to touch a low of 1.5264 on Thursday, as GDP figures met estimates. The British Pound then rallied to a high of 1.5435, aided by a weaker USD that was overwhelmed by strong manufacturing data from the Eurozone. Cable closed the week at 1.5382. The JPY opened the week at 100.65, strengthening against a weaker US Dollar at the beginning of the week. The Japanese Yen rose against most major peers after Japan’s ruling party failed to win an independent majority in upper-house elections. The Japanese Yen dropped from 100.50 per US Dollar, to 99.60. Shinzo Abe’s victory in the elections to the upper house of parliament opened a window for him to deliver on promises for structural reforms, stating that these steps will revive the country’s economy. The Japanese Yen continued to strengthen against the USD on speculation that the Federal Reserve Chairman Ben S. Bernanke will not rush to increase interest rates after the US central bank winds down its bond-buying stimulus program. The Japanese Yen closed the week at 98.21.
Existing Home Sales Drop
Sales of previously owned American houses unexpectedly dropped last month as constricted supply and increasing rates for mortgages jeopardized the real estate market in the world’s largest economy. Purchases of existing houses decreased by 1.2 percent to 5.08m homes. The figure came short of the forecasted 5.26m, and lower than the previous months’ revised figure of 5.14m. It is the second strongest demand since November 2009 following May’s revised rate of 5.14m.
New Home Sales Rise
The US new home sales rose more than expected last month to the highest level in more than five years, adding to signs that homebuilders are gaining from a lack of supply of existing properties. New Home sales rose 8.3 percent to an annualized rate of 497,000, the highest level since May 2008, against a forecasted 484,000 and higher than May’s revised figure of 459,000. Growing employment and the historically low borrowing costs will add more gains to the housing market and home values, and hike demand for Americans who held off from purchases during the recession, giving the United States’ economy a boost.
Unemployment Claims Higher
More Americans than forecasted filed for first-time claims for unemployment last week, as annual auto-plant shutdowns continued to hamper the labor market. The number of Americans filing applications for unemployment benefits unexpectedly rose by 7,000 to 343,000. The figure came higher than the expected 340,000.
Europe
German Manufacturing Rises
German Manufacturing Purchasing Managers Index unexpectedly rose more than forecasted this month, as output hits the highest mark since February 2012, while service providers pointed to the steepest rise in business activity for five months, a sign of hope that the Eurozone is pulling out from its record long recession. The Manufacturing Purchasing Managers’ Index rose to 50.3 in July, exceeding estimates of 49.2. The figure rose from June’s number of 48.6.
United Kingdom
GDP Accelerates
UK economic growth accelerated in the second quarter as the country’s major industries showed solid expansions for the first time in three years, signaling that the British economy is gaining traction. Gross domestic product increased 0.6 percent from the first quarter. Threats to growth remain, both domestically from the government’s fiscal squeeze, and internationally from the tensions in the euro area and a slowdown in China, the world’s second largest economy.
Commodities
Oil
West Texas Intermediate was poised for the first weekly drop in more than a month, amid rising crude output in the United States and speculation that China’s plans to cut excess manufacturing capacity will reduce fuel demand. WTI crude slid as much as 4.3 percent in the week, touching a high of 108.79 on Monday, only to fall for the rest of the week to a low of 104.08.The Peninsula
