The twelve-week one-way move of the USD ended this week, driven by a variety of factors. Some were led by domestic stories beginning to unfold, while others were more global. The Yen has been the biggest beneficiary, meanwhile the Euro, rallied steadily all week up to Thursday.
The momentum started on Monday on profit taking and continued on Wednesday after the dovish Fed minutes, raising the question as to whether the Fed might remove considerable period at the October meeting.
The US Dollar recouped some of the losses at the end of the week after Draghi, reiterated that the governing council was “unanimous in its commitment to take additional unconventional measures to address the risks of a too prolonged period of low inflation. This means that we are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required.”
In summary, on the foreign exchange side, the USD saw a rebound on Thursday, after the relatively strong US initial claims data and extended on comments from ECB's Draghi, even if there was little news in them.
The Dollar gains were mainly broad based, though struggled to hold above 108.00 against the Yen with equities slipping in another reversal of the post-FOMC minutes move. The Euro ended the week on the lower side at 1.2628 after reaching a high of 1.2791 on Wednesday. The Sterling Pound on the other hand started the week recouping some of its losses towards the 1.6227 level, however ended the week on the low side of 1.6076.
In the commodities markets, the USD strength managed to send oil prices down to their lowest in two years, while Gold recovered from its losses after the release of the Federal Open Market Committee minutes for 17 September meeting. The minutes showed that a number of participants said US growth might be slower than they expected if foreign economic growth came in weaker than anticipated.
Fed Speakers on the Wire
James Bullard, President of the Federal Reserve Bank of St Louis, maintained his view that the Fed should be tightening in the first quarter of 2015 and he was not worried about the US Dollar strength. On the other hand, Fed's Vice Chairman Fischer noted that the Fed will discuss the dollar again at next FOMC meeting and they needed to take into account the dollar impact on aggregate demand. Fed Fischer noted also that considerable time is somewhere between 2 months and a year and capital market are more or less right in terms of rate hikes and the exchange rate reflects changes in Europe and the US. San Francisco Fed President John Williams stayed with the likely rate liftoff in mid-2015 but of course, he reiterated that it was data-contingent.
Draghi Delivers Dovish Notes
Draghi’s speech this week, touched on previous points mentioned in the previous EB conferences, but the full speech was quite dovish. "Let me be clear: we are accountable to the European people for delivering price stability, which today means lifting inflation from its excessively low level. And we will do exactly that. The Governing Council has repeated many times, even as it was adopting new measures: it is unanimous in its commitment to take additional unconventional measures to address the risks of a too prolonged period of low inflation. This means that we are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required." German data are Worrying The stream of disappointing data continues out of Germany with investors questioning the solidity of the German economy and whether it could continue to support the rest of the Eurozone.
Looking at the data, Germany’s trade numbers confirmed this week that exports have slowed down. German exports slumped 5.8%, which is once again the biggest fall since the financial global crisis in 2009.
The Federal Stats office blamed summer vacations in some German states had contributed to the fall in both exports and imports, but the figures still painted a gloomy picture for Germany following steep drops in industrial orders and output data earlier in the week. Germany trade balance dropped to 17.5bn, from 22.2bn in July, markedly below expectations of 18.5bn.
Despite the continuation of weak data, Bundesbank chief, Jens Weidmann, warned in a German magazine that there was a danger the ECB would buy "low-quality loan securitizations" at inflated prices as part of its ABS programme. He also warned “the credit risks taken by private banks would be transferred to the central bank and therefore taxpayers without them getting anything in return".
In addition, former ECB chief economist Juergen Stark, who resigned in 2011 in protest over the ECB's intervention in the government bond markets, said that the ECB's unconventional measures were "an act of desperation".
This continuation of weak data is likely to be of great concern and is likely to fuel debate over whether Chancellor Angela Merkel's government should be increasing public investment, instead of prioritizing deficit reduction. It also raises the question whether Germany Schaeuble has any more reason to oppose Draghi’s ECB policies.
Slowing Housing Market in the UK
The RICS survey in the UK provided further evidence of a slowing housing market. The prices balance remained decent at +30% but that is far lower than the mid-50s levels 3-6 months ago. These are national figures; a slowing is much more evident in London. The price balance fell to -8% in the capital, the first negative print since early 2011. Sales & sales expectations are also negative but the big fall in September was in buyer enquiries, which dropped to -54%, one of the most negative prints on record (the last time it was worse was in 2008). Valuations seem to be putting London buyers off, and further falls in asking prices appear to be likely.
Kuroda: Economic Fundamentals Should Drive Currency
The BoJ refrained from further monetary expansion last week as BoJ members seemed concerned that investors may view April 2015 as a binding deadline, fueling speculation that the bank will boost stimulus to meet the inflation target goal. Analysts also think the BoJ will likely find it difficult to ease further in the absence of a sharp economic slowdown that leads to yen appreciation against the dollar, and there have been speculations whether politicians are likely to start debate on whether the 2% inflation is necessary if the yen continues to weaken.During the G20 this week, in an effort to ease the Yen volatility, Governor Kuroda spoke in New York and did not comment on the latest FX volatility. He only reiterated that fundamentals should continue to drive the currency and maintained that the central bank will continue their effort to reach their 2% Inflation target.
Shaky Australian Employment
Australian employment fell an estimated 29.7k in September while unemployment rate was up to 6.1% from a revised 6.0%. The Australia Bureau of Statistics announced this week that it will change the way it breaks down employment numbers for July, August and September, by excluding seasonality factors. As a result, the September employment figures released on Thursday showed the economy losing 29.7k jobs, much worse than analysts’ expectations for an addition of 20,000 jobs. These job revisions reinforce the Reserve Bank’s view that the unemployment rate will remain high," and keep rates on hold in the near term.
The momentum started on Monday on profit taking and continued on Wednesday after the dovish Fed minutes, raising the question as to whether the Fed might remove considerable period at the October meeting.
The US Dollar recouped some of the losses at the end of the week after Draghi, reiterated that the governing council was “unanimous in its commitment to take additional unconventional measures to address the risks of a too prolonged period of low inflation. This means that we are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required.”
In summary, on the foreign exchange side, the USD saw a rebound on Thursday, after the relatively strong US initial claims data and extended on comments from ECB's Draghi, even if there was little news in them.
The Dollar gains were mainly broad based, though struggled to hold above 108.00 against the Yen with equities slipping in another reversal of the post-FOMC minutes move. The Euro ended the week on the lower side at 1.2628 after reaching a high of 1.2791 on Wednesday. The Sterling Pound on the other hand started the week recouping some of its losses towards the 1.6227 level, however ended the week on the low side of 1.6076.
In the commodities markets, the USD strength managed to send oil prices down to their lowest in two years, while Gold recovered from its losses after the release of the Federal Open Market Committee minutes for 17 September meeting. The minutes showed that a number of participants said US growth might be slower than they expected if foreign economic growth came in weaker than anticipated.
Fed Speakers on the Wire
James Bullard, President of the Federal Reserve Bank of St Louis, maintained his view that the Fed should be tightening in the first quarter of 2015 and he was not worried about the US Dollar strength. On the other hand, Fed's Vice Chairman Fischer noted that the Fed will discuss the dollar again at next FOMC meeting and they needed to take into account the dollar impact on aggregate demand. Fed Fischer noted also that considerable time is somewhere between 2 months and a year and capital market are more or less right in terms of rate hikes and the exchange rate reflects changes in Europe and the US. San Francisco Fed President John Williams stayed with the likely rate liftoff in mid-2015 but of course, he reiterated that it was data-contingent.
Draghi Delivers Dovish Notes
Draghi’s speech this week, touched on previous points mentioned in the previous EB conferences, but the full speech was quite dovish. "Let me be clear: we are accountable to the European people for delivering price stability, which today means lifting inflation from its excessively low level. And we will do exactly that. The Governing Council has repeated many times, even as it was adopting new measures: it is unanimous in its commitment to take additional unconventional measures to address the risks of a too prolonged period of low inflation. This means that we are ready to alter the size and/or the composition of our unconventional interventions, and therefore of our balance sheet, as required." German data are Worrying The stream of disappointing data continues out of Germany with investors questioning the solidity of the German economy and whether it could continue to support the rest of the Eurozone.
Looking at the data, Germany’s trade numbers confirmed this week that exports have slowed down. German exports slumped 5.8%, which is once again the biggest fall since the financial global crisis in 2009.
The Federal Stats office blamed summer vacations in some German states had contributed to the fall in both exports and imports, but the figures still painted a gloomy picture for Germany following steep drops in industrial orders and output data earlier in the week. Germany trade balance dropped to 17.5bn, from 22.2bn in July, markedly below expectations of 18.5bn.
Despite the continuation of weak data, Bundesbank chief, Jens Weidmann, warned in a German magazine that there was a danger the ECB would buy "low-quality loan securitizations" at inflated prices as part of its ABS programme. He also warned “the credit risks taken by private banks would be transferred to the central bank and therefore taxpayers without them getting anything in return".
In addition, former ECB chief economist Juergen Stark, who resigned in 2011 in protest over the ECB's intervention in the government bond markets, said that the ECB's unconventional measures were "an act of desperation".
This continuation of weak data is likely to be of great concern and is likely to fuel debate over whether Chancellor Angela Merkel's government should be increasing public investment, instead of prioritizing deficit reduction. It also raises the question whether Germany Schaeuble has any more reason to oppose Draghi’s ECB policies.
Slowing Housing Market in the UK
The RICS survey in the UK provided further evidence of a slowing housing market. The prices balance remained decent at +30% but that is far lower than the mid-50s levels 3-6 months ago. These are national figures; a slowing is much more evident in London. The price balance fell to -8% in the capital, the first negative print since early 2011. Sales & sales expectations are also negative but the big fall in September was in buyer enquiries, which dropped to -54%, one of the most negative prints on record (the last time it was worse was in 2008). Valuations seem to be putting London buyers off, and further falls in asking prices appear to be likely.
Kuroda: Economic Fundamentals Should Drive Currency
The BoJ refrained from further monetary expansion last week as BoJ members seemed concerned that investors may view April 2015 as a binding deadline, fueling speculation that the bank will boost stimulus to meet the inflation target goal. Analysts also think the BoJ will likely find it difficult to ease further in the absence of a sharp economic slowdown that leads to yen appreciation against the dollar, and there have been speculations whether politicians are likely to start debate on whether the 2% inflation is necessary if the yen continues to weaken.During the G20 this week, in an effort to ease the Yen volatility, Governor Kuroda spoke in New York and did not comment on the latest FX volatility. He only reiterated that fundamentals should continue to drive the currency and maintained that the central bank will continue their effort to reach their 2% Inflation target.
Shaky Australian Employment
Australian employment fell an estimated 29.7k in September while unemployment rate was up to 6.1% from a revised 6.0%. The Australia Bureau of Statistics announced this week that it will change the way it breaks down employment numbers for July, August and September, by excluding seasonality factors. As a result, the September employment figures released on Thursday showed the economy losing 29.7k jobs, much worse than analysts’ expectations for an addition of 20,000 jobs. These job revisions reinforce the Reserve Bank’s view that the unemployment rate will remain high," and keep rates on hold in the near term.
Source:
Press Release
