For now, it appears that the Quantitative Easing tapering has been well and fully priced in the market. The Euro remains under pressure as interest differential between the US and Eurozone continue to widen. Moreover, dovish comments from ECB President Mario Draghi, stating that “easy money will persist in the Eurozone into the distant future” as unemployment remained high and inflation low, pushing the Euro lower against the greenback.
The Euro started the week on a positive note, opening at 1.3122. The single currency then rose to 1.3151 against its American counterpart after Federal Reserve Bank of Dallas President Richard Fisher said that “investors should not overreact to the central bank’s plans to reduce the pace of asset purchases”, weakening the demand for the US Dollar. The market then reversed its trend, as US data came on the strong side with durable goods up strongly again and house prices impressing markets, pushing the US Dollar higher against its major counterparts. The Euro dropped significantly following the release of the US data to a low of 1.2985, aided by dovish comments from Draghi, stating that “accommodative policy will continue for as long as needed” and that the “ECB is ready to act”. The Euro then regained its losses and hiked all the way to 1.3076 after positive German confidence data. The single currency closed the week at 1.3010. Cable opened the week at 1.5418, only to rise against a weakening US Dollar, to push the Pound to a high of 1.5477. The Sterling Pound then collapsed against the US Dollar, after BoE policy maker David Miles stated that “UK growth remains pretty weak, and that more asset purchases likely to be helpful”. The Pound touched a low of 1.5202 on Thursday, after data showed UK disposable income fell to the lowest level in 25 years. Cable closed closed the week at 1.5212. The Japanese Yen continued with its volatile movements against the USD. The JPY opened the week at 97.90, strengthening against a weaker US Dollar at the beginning of the week, to touch a high of 96.96 on Tuesday. The Japanese Yen then weakened dramatically, as the US Dollar rose to more than a two week high against the Yen on Friday, despite upbeat Japanese data, as uncertainty over the future of the Federal Reserve’s stimulus program continued to support the greenback. Adding momentum on the JPY, the Nikkei experienced a solid performance at the end of the week, to hike the JPY to break the 99.00 level, the pairs’ highest level since the 10th of this month. The Yen weakened by 218 basis points against the greenback during the week. The Japanese Yen closed the week at 99.14. The CHF opened the week at 0.9345, strengthening to a high of 0.9313 against the USD, only to weaken dramatically during the remainder of the week to touch a low of 0.9488. The Swiss Franc closed the week at 0.9450.
Unemployment Claims Fall
Fewer Americans filed for first-time claims for unemployment last week, indicating that companies are keeping their employees by slowing the pace of firings, as the economic outlook in US improves. The number of Americans filing applications for unemployment benefits fell by 9,000 to 346,000. The figure came higher than the expected 345,000. As dismissals slow, this could boost a pick-up in hiring, as employers are more confident that demand will be sustained while consumers grow more optimistic.
Consumer Confidence Still High
US consumer sentiment fell less than forecasted in June, from a near 6-year high in May, as Americans became more optimistic and upbeat about the economic conditions. The University of Michigan consumer sentiment index only dropped to 84.1, from 84.5 in May, the highest level since July 2007.
The figure came better than the expected 83.0. The sentiment among US consumers’ slight drop was due to a pickup in the housing market, and gains in the labor market, which spurred confidence in Americans towards the outlook of the economy.
Europe
German Unemployment Change Drops Significantly
German labor market lost 12,000 jobs last month. The unemployment change surprised the European markets as the forecast was set at a gain of 8,000. While the unemployment rate is still unchanged at 6.8%, the labor market signals disturbance and volatility in Europe’s power horse, Germany.
German Ifo Business Climate Rises
German Business confidence increased for the second time in June, amid signs that Europe’s largest economy is gaining traction and gathering pace, even as the Euro area struggles to emerge from recession. The Ifo Institute’s business climate index climbed to 105.9 this month, the second gain since February, from 105.7 in May. A measure of executive expectations jumped to 102.5 from 101.6, while on the other hand a measure of business conditions fell to 109.4 from 110.0.
United Kingdom
Consumer Confidence at 2-year High
Britain’s consumer confidence rose to its highest level in more than 2-years in June, as the British economy endures a positive outlook, which pushed Britons to spend more compared to recent past years. The consumer confidence index, measured by Gfk NOP Ltd., rose to -21, from -22, the best reading since May 2011. While the economy is showing signs of strength after resuming growth in the first quarter, Bank of England Governor Mervyn King stated that a recovery “is in sight”, although “it is too weak to be satisfactory”.
Commodities
Gold Drops
Gold traded near a 34-month low, in the worst quarterly drop in at least 90 years, as the Federal Reserve keeps an open mind on tapering stimulus. The precious metal dropped 25pc this quarter, after Federal Reserve Chairman Ben Bernanke, stated that “the Fed may begin tapering its bond-buying program this year”.
The Peninsula
