Kuwait – Mubasher: The US Dollar rose last week to its highest level since April amid expectations that the Federal Reserve will increase short-term interest rates next month. Indeed, the US dollar remained at a six-month peak against the other major currencies, as trading volumes remained thin during the long Thanksgiving weekend, said National Bank of Kuwait in a report.
It added that, last week, a set of upbeat US economic data continued to reinforce the case for a Federal Reserve rate hike next month. The US Department of Labor said jobless claims declined by 12,000 last week to 260,000. Analysts expected claims to fall by 2,000 last week. In parallel, the US Commerce Department said durable goods orders jumped 3.0% in October, surpassing expectations for a 1.5% increase.
In Europe, markets continue to expect the European Central Bank to increase their monetary stimulus next week. After continuously and clearly signaling their intentions over the past few weeks, backing off from further easing has become extremely difficult without causing a market shock. Since the ECB President Draghi indicated in October that the governing council would act if needed to drive up inflation to its 2% target, speculation of further extreme measures continue to weigh on the currency. Economists also revised their forecast for the ECB’s December meeting and now expect a 20 basis point deposit rate cut from previously 10 basis point cut. Additionally, investors expect the ECB to increase the amount of bonds it buys each month to 75 billion Euros from the current 60 billion Euros, or extend its quantitative easing programme beyond September 2016 potentially until September 2017.
On the foreign exchange side, the Euro fell to its lowest level in more than 7-months on speculations that the ECB will act decisively during its December policy meeting. Markets expect the European Central Bank to either increase the scope of its bond-buying program and/or potentially impose a two-tiered penalty for banks that leave deposits at its facility. At the same time, markets continue to expect the US Federal Reserve to start its monetary tightening cycle. Policy divergence between both continues to create a highly negative environment for the Euro. The currency opened the week at 1.0645, reached a high of 1.0689, however, closed the week at the lowest level since April marking a low of 1.0565.
Similarly the Sterling Pound opened the week at 1.5186 and rose slightly of 1.5195 where it found major resistance. The currency then dropped sharply, reaching a fresh seven months low of 1.5023, after the Bank of England governor Mark Carney said that UK interest rates are likely to remain low "for some time". The Pound closed the week near the lows at 1.5040.
The Japanese Yen traded in a tight trading range between a high of 123.25 and a low of 122.23 after minutes from the Bank of Japan meeting indicated that the underlying trend in inflation has been improving steadily and that the quantitative and qualitative monetary easing which the Bank introduced in April 2013 has been exerting its intended effects toward overcoming a deflationary environment, according to NBK.
The US economy grew at a better rate in the third quarter than originally expected, suggesting resilience that could help give the Federal Reserve confidence to raise interest rates next month. GDP grew at a 2.1 % annually, higher than the 1.5% rate reported last month. The growth estimate was also boosted by upward revisions to business spending on equipment and investment in home building. Household consumption, which accounts for almost 70% of the economy, grew at a 3% annualized rate, less than the previously estimated 3.2%.
