The United States Fed chair Janet Yellen surprised the markets with unexpectedly dovish comments about the economy. Yellen noted that the Federal Reserve has not done enough to combat unemployment. Currently the Federal Reserve has reduced its QE programme by $30bn, and Yellen plans to wind up the remaining $55bn in the fall as long as the US economy does not run into any serious turbulence. The dollar index rallied to a five week high of 80.59 after the US posted positive employment figures, the Non-Farm Payrolls added 192,000 new jobs in March, in line with economists’ expectations, and the unemployment rate held at 6.7 percent.
The European Central Bank Kept key interest rates unchanged and made no other policy changes. ECB President Draghi said, “the moderate recovery of the euro area economy is proceeding in line with expectations”. He also reiterated that European Central Bank “sees a prolonged period of low inflation but for inflation to rise gradually thereafter”. The Euro currency lost its footing against its US Dollar counterpart, reaching a four-week low of 1.3680, after the ECB president Draghi sounded dovish. He said the council unanimously considers QE as a legitimate policy tool that would be used combat low inflation.
The Sterling pound did not perform strongly last week; it fell to a low of 1.6552 after posting a high of 1.6678 early in the week. The drop in the currency was due to worse than expected hosing price data that dropped 1.1 percnet alongside worse than expected manufacturing data.
The Australian central bank maintained its benchmark interest rate unchanged at a record low of 2.5 percent. The Australian dollar reached a five-month high of 0.9297 against its US counterpart, after Australia’s central bank maintained its benchmark interest rate unchanged at a record low of 2.5 percent and Governor Stevens indicated that there would not be further rate cuts any time soon.
In Japan, the Tankan Indexes painted a mixed picture about the health of the Japanese economy for the first quarter 2014, the Non-Manufacturing Index showed improved to 24 points from 20 points in line with expectation, while the Manufacturing Index rose slightly to 17 points slightly below market expectation of 19 points. The USDJPY started the week at 102.75 where it found support, later in the week the dollar strengthened against the yen to reach a high of 104.15 where it found strong resistance, the Japanese yen closed for the week at 103.31 due to profit taking.
Yellen spoke about the US economy, labour market and central bank policies. Yellen said that the Federal Reserve did not do enough to combat unemployment even after holding interest rates near zero for more than five years and pumping up its balance sheet to $4.23 trillion with bond purchases. Yellen also eased investors’ concerns that interest rates may rise earlier than forecasted, she said that the United States would need to maintain the Federal Reserve stimulus for “some time.”
US manufacturing Index grew at a strong pace in March as gains in production and new orders showed the industry was improving. The Institute for Supply Management’s index increased to 53.7 slight less than economist forecast of 54; however, a reading above 50 still indicates expansion in the economy. Production picked up last month as temperatures warmed and suppliers had greater success making deliveries.
The Institute for Supply Management-Chicago business barometer fell more than expected in March to its lowest level since August 2013, resuming its recent trend of slower regional growth. The Business activity came at 55.9 down from 59.80 in February, and well below market expectation of 59.00. While this regional business indicator dropped, analysts said the domestic manufacturing sector remained on a moderate growth path despite slower overseas demand alongside bad weather.
Eurozone inflation hit its lowest level in more than four years; inflation in the euro area fell to 0.5 percent in March, down from 0.7 percent in February and well below market expectation of a drop to 0.6 percent. The latest drop in inflation rates raised expectations the European Central Bank will take radical action to stop the threat of deflation in the currency. However after the ECB decided to leave its main interest rate at a record-low 0.25 percent and not provide any further stimulus, President Mario Draghi said that the inflation figures are consistent with the bank’s forecasts of a “prolonged period of low inflation.” Draghi said the ECB’s governing council is unanimous in its determination to maintain a highly accommodative monetary policy stance and is ready to use “unconventional measures to cope with the risk of a too-prolonged period of low inflation.” Such measures would be an implementation of Quantitative Easing programme.
The Peninsula
