Currency market weekly review (December 30, 2013 - January 03, 2014)
January 6, 2014, Monday, 18:57 GMT | 13:57 EST | 23:27 IST | 01:57 SGT
At the beginning of this week, the euro rose sharply, but this was not enough momentum to continue this trend. The course of trade was affected by comments Draghi, who in an interview with Der Spiegel said that there is no need to further reduce the basic interest rate. According to the newspaper, according to M.Dragi , crisis is not over , but there are many encouraging signals. ECB lowered its key interest rate by 0.25 % points - to a record low of 0.25 % per annum, stating concerns about an "extended period” of low inflation in the eurozone. Mr. Draghi said that he sees no signals deflation, adding that the situation in the euro zone is different from the situation in Japan. Among the positive signals for the European economy - economic growth in some countries, the reduction of trade imbalances between countries in the region, as well as the reduction of budget deficits, said M.Dragi.
The data on manufacturing activity in Germany and the euro area couldn’t provide any support for euro. The growth of the eurozone manufacturing sector in December, according to preliminary estimates published last month, showed that the purchasing Managers Index rose for the third month in a row to a level of 52.7 in December. Value was unchanged from the preliminary estimate was higher than November's 51.6 value.
Last improvement in the general conditions of activity was supported by a solid and rapid growth in the Netherlands, Germany, Ireland and Italy, while Austria has continued to expand in a robust pace, despite the fact that the strength of growth decreased slightly compared to November. Meanwhile, Spanish PMI returned to the territory expansion. In Greece, the higher levels of production and new orders PMI pushed to 52 -month high and noted close to the equilibrium level of 50. Nevertheless, France moved in the opposite direction - its PMI dropped to seven-month low.
Pressure on the currency had another report, which showed that loans to the private sector decreased by 2.3 % year on year in November, after falling 2.2 % in October. Meanwhile, loans to households increased by 0.1 per cent per annum after 0.2 % growth in the previous month. Annual growth rate of lending for house purchase, the most important component of household loans amounted to 0.9 % in November, unchanged compared with the previous month. Loans to non-monetary financial intermediaries except insurance corporations and pension funds fell 9.1 % from a year earlier in November. This followed a decline of 8 % in the previous month.
The dollar has grown significantly over the week. Support the currency had a report that showed that business conditions in the U.S. manufacturing sector improved at the fastest pace since January. Corresponding PMI rose to 55.0 in December compared with 54.7 in November and was higher than the preliminary estimate of 54.4.
Meanwhile, another report published by the Institute for Supply Management (ISM), showed that in December manufacturing activity in the U.S. fell slightly less than economists' expectations . The PMI index for the U.S. manufacturing declined this month to 57.0 vs. 57.3 in November. Note that the last reduction was weaker than economists' forecasts, which are expected to decline to 56.8.
Not unimportant as were data on the number of applications for benefits. As it became known, the number of initial claims for unemployment benefits reduced by 2000 and totaled a seasonally adjusted 339,000 in the week ended December 28. Economists had expected 334,000 initial claims per week. The number of applications from the previous week was revised to 341,000 from 338,000.
In addition, the dollar was supported by the presentations in the Fed conference in Philadelphia, including speeches of Mr. Plosser, Mr. Stein and Mr. Bernanke.
The British pound has fallen against the dollar, which was mainly associated with the publication of the index of manufacturing activity, which came out weaker than expected. The Markit Economics announced that the recovery of production in the UK continued in late 2013. However, the purchasing managers' index fell to 57.3 in December from November's 33 -month high of 58.1. Value in November was revised from 58.4. The pace of expansion in output and new orders remained among the highest in the 22- year history of the survey. As a result, the pace of job growth was second in strength over the past two and a half years. On the price front, the average purchase and sale prices rose at a faster pace in December.
Were also important data on activity in the UK construction sector, which has increased the eighth consecutive month in December, rates close to six-year highs due to the emergence of new companies and the growth of confidence in late 2013.
The continuing increase in construction work in all three sectors: residential, commercial and civil engineering, followed by growth in the manufacturing sector, were suggesting that the British economy ended the year on the rise.
The PMI was 62.1 in December from 62.6 in November. A reading above 50 indicates growth in activity, while below shows the reduction of activity in the sector. Balance is calculated by subtracting the number of respondents who reported falling activity, the number of those who celebrate the increase.
The Japanese currency showed the largest 2013 annual decline since 1979, but began to show significant growth in the first days of this year. These developments were caused by rumors that the Bank of Japan will continue its unprecedented stimulus program, to support the economic strategy of Prime Minister Shinzo Abe . In general, the Japanese currency has fallen in the past year by 16% against a basket of nine other currencies. Hedge funds and other large speculators increased bets on a further fall in the yen against the dollar to a maximum value since July 2007. At the last meeting, the Bank of Japan decided to keep the amount of bond purchases at 60 - 70 trillion yen ($ 581 billion ) a year. The chapter regulator Haruhiko Kuroda earlier assured further maintaining super soft rate until inflation has stabilized at a level of 2%. Inflation expectations are likely to grow, and it predicts an increase in core inflation. Most economists believe that the central bank will go to the expansion of incentives in the first half of 2014.