The Dollar Index rose to a seven-week high as investors sifted through US economic data that included strong readings on Manufacturing, Existing Homes Sales and Leading Indicators.
The Euro extended its drop last week amidst mostly negative data out of the Eurozone, including a disappointing Flash PMI report. The common currency has been on a weakening binge ever since the ECB President Mario Draghi said, policy makers were ready to cut the Euro benchmark rate, which is currently trading at 0.25 percent, or the implementation of extraordinary measures, such as lowering the deposit rates into negative territory.
The Sterling Pound fell slightly against its US Dollar counterpart reaching a low of 1.6810, as investors were disappointed for not having another upbeat Final GDP report. Although the final GDP report was not expected to provide any surprises and was expected only to confirm the earlier figure of an 0.8 percent rise . Still, investors were hoping for an upside revision of the indicator. Nevertheless, the report offered no surprises and British currency dropped for the first time in six days, the Sterling Pound closed for the week at 1.6830.
Early last week, the US Dollar fell against the Yen reaching a low of 100.80, only to find support and rally back towards 101.96 , after the Bank of japan indicated that it would continue with its qualitative and quantitative program since they have been exerting the desired effect of creating higher inflation rates.
According to the minutes of the Federal Open Market Committee meeting held on April 29-30, the Federal Open Market Committee and the Board of Governors of the Federal Reserve System discussed issues associated with the eventual normalization of the stance and conduct of monetary policy. Fed officials discussed the need to improve guidance on the path of interest rates and heard a staff presentation on tools to control short-term borrowing costs once policy makers decide to raise them above zero.
They also said that the ongoing stimulus package that aims to push unemployment lower, dose not risk creating an undesirable jump in inflation rates. With inflation estimated to remain well below its 2 percent goal, the Federal Open Market Committee doesn’t “face a trade-off between its employment and inflation objectives, and an expansion of aggregate demand would result in further progress relative to both objectives.”
US Jobless Claims increased by 28,000 to 326,000 in the week ended May 17, slightly above market expectation of a 310,000 rise. While total benefits reached the lowest since December 2007, signs the United States job market may take time to show a sustained acceleration. The four-week average of claims, a less volatile measure than the weekly figure dropped to 322,500 last week from 323,500.
Last week the US Existing Home Sales increased 1.3 percent to an annual rate of 4.65 Million units, slightly missing market expectation of 4.68 Million units, but still suggesting that the housing market sector was regaining momentum after stumbling in the second half of 2013 due to higher mortgage rates and house prices. The inventory of homes available for sale rose sharply by 16.8 percent to 2.29 Million units in April to mark the highest inventory level since August 2012.
Germany’s Gross Domestic Product grew strongly by 0.8 percent in the first quarter of 2014, doubling the rate of the fourth quarter of 2013. With the help from mild winter weather and a strong labor market, final GDP growth figure released last week indicated that Germanys first quarter GDP grew by 0.8 percent from the previous quarter, or 2.3 percent from year ago, within analysts’ expectations .
Germany’s IFO business confidence indicator missed estimates in May due to low inflation levels across Europe alongside Geopolitical tensions in Ukraine. The confidence indicator rose to 110.4 in May from 111.2 in April, and below analyst forecast of 110.9.However German exporters are confident about their ability to sell to other strong markets overseas like China , if trade with Russia is further impacted by sanctions over Ukraine.
UK’s inflation rate rose in April from its lowest level in more than four years as the Easter holidays pushed up the cost of transportation. British Consumer Price Index rose more than expected, to an annual rate of 1.8 percent in April, from 1.6 percent in March, which had been its lowest level in more than four years. The Sterling pound reached a 16-month high of 1.2373 against the euro and rose against the dollar reaching a high 1.6875 before giving up much of its gains as market expectations that the Bank of England will raise interest rates in about a year’s time remained largely intact.
Last week, Bank of England Governor Mark Carney said, in a Television interview that the housing market posted the biggest risk to Britain’s economic recovery as a shortage of new homes drives up prices. He said the Bank of England was watching to ensure that banks had enough reserves to withstand the risks of bad loans should the housing market suffer a downturn. Carney added, “The level of higher loan-to-income mortgages, ones above four and a half, five times loan-to-income, potentially could store up bigger problems for the future and we need to be careful.” David Cameron reacted to Carney’s comments by saying that more homes are needed to be built in order to satisfy demand.
At the Monetary Policy Meeting held last week, the Policy Board of the Bank of Japan decided, to set the following guidelines. The BOJ will conduct money market operations so that the monetary base will increase at an annual pace of about 60-70 Trillion Yen. In regards to the asset purchases, the Bank will continue purchasing the Japanese government bonds, ETFs and corporate bonds. With regards to the Quantitative and Qualitative easing, the BOJ will continue with QQE, since they have been exerting the intended effects of achieving price stability target of 2 percent.
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