Currency market weekly review (February 11 - February 15, 2013)
Euro: Amid the new round of escalating political situation recently started in both Italy and Spain the euro traded near two-week low against the dollar. The newspaper “El Pais” has recently published the compromising materials on the Spanish Prime Minister, Mariano Rajoy who had faced calls from the opposition party to resign. The public surveys conducted in Italy ahead of the elections which will be held on February 24-25 showed an increase in popularity of the former Italian Prime Minister Silvio Berlusconi, who was actually found guilty of tax evasion in October 2012. The EUR / USD pair rose to a high of $ 1.3411 on Monday as the reaction on the published today industrial production report from France which resulted an increase by 0.1 % in December vs. -0.2 % expected and previous change by +0.5% . On the background of statements of the representative of the European Central Bank, Jens Weidmann who said that the current rate of the single European currency is not too overpriced the euro rose against most major currencies. In addition, Mr. Weidmann added that the policy aimed for weakening of the euro would lead to inflation. On Tuesday, the euro currency was supported by the positive results of the Spanish bond auction, which showed decent demand for the assets. Spain was able to sell its 6 and 12 –month mature bonds for amount of E5.57 billion with a yield similar to the yield at the previous auction. On Wednesday, the euro grew up against the dollar and hit the level of $ 1.3500 ahead of started this day the G20 meeting. The report of the European industrial production, the data of which showed that in December the production rose by 0.7% against previously 0.7% and forecasted 0.2 % supported the asset. The result of annual terms coincided with the forecast thus resulted contraction by 2.4%, which was substantially better than the 4% in November. The euro fell against most major currencies on Thursday after published this day report showed that the unemployment rate in Portugal in the fourth quarter rose to the highest value since the creation of the euro area to 16.9 %, compared with 15.8 % in the third quarter. Also, another data showed that the number of unemployed people in the country rose by 19.7 % per year to 923 200 persons and the number of employed persons decreased by 4.3% to 4.53 million. The EUR / USD pair fell to the lows of $ 1.3315 after the release of the preliminary report on the GDP of the Euro zone, the result of which was unexpectedly worse than forecasted. In the 4th quarter Euro zone GDP declined from -0.6% to -0.9 % in annual term compared with an expected 0.7%. In the quarterly equivalent index fell by -0.6 % versus -0.4% forecasted.
U.S. Dollar: The dollar index suffered big intraday down fall and dropped below the area of 80.00 after publication of the statement of the G-7 on the commitment to market exchange rates. However, it was able to strengthen its position as the Euro currency came under severe pressure. The dollar index grew up erasing its previous loses and jumped above the 80.5 area. However, relatively to other major currencies dollar behaved with restraint and even weakened thus helping growing of the appetite for risky assets. On Thursday, the “greenback” had support after the release of U.S. data, which showed that the number of initial claims for unemployment benefits fell last week, more than expected. According to the U.S. Department of Labor, for the week ends by February 10th, the numbers showed a larger than expected decline dropping by 27K to 341K which was lower than 360K forecasted and the revised value for the previous week of 368K.
British Pound: The British pound was again under pressure during this week. The GBP / USD pair fell to the lows of $ 1.5650 after the industry report showed weak level of trust in relation to employment in the UK. Also, the negative came after the consumer price index in the UK in January showed increase up to 2.7 % compared to the same period of the previous year, in a monthly term. The British pound fell to a six -month low against the dollar when the annual inflation rate in the UK in January was confirmed at the high level that firmly held above the target level of the Bank of England. Indeed, the report demonstrated that UK’s GDP will remain below pre-crisis levels until 2015, and the CPI will exceed the target mark in the next three years. In addition, the statements of the head of the Central Bank Governor Mervyn King at the press conference, which was dedicated to the release of the traditional monthly quarterly report, said that he is willing to tolerate higher inflation in order to support the economy in overcoming the crisis trends. This statement was interpreted as a signal to increase the probability of further easing of monetary policy, which pinned down the position of sterling. The GBP / USD pair for the week lost about 1.9%.
Japanese Yen: The yen continued to grow at the beginning of this week; the USD / JPY pair fell to the Y92.24 area close to its Friday’s lows amid the statements of the Finance Minister of Japan, Taro Aso who said that the recent sharp depreciation of the Japanese yen surprised the government. In addition, the rate of yen was also supported by the information about the obstacles comes from the opposition party within the appointment of the new head of the Central Bank of the country, who will pursue an aggressive policy of economic incentives. On the next following session the yen fell against the dollar after the President of the Asian Development Bank Haruhiko Kuroda, who is a potential candidate for head of the central bank position, said that he supports the implementation of additional measures to stimulate the economy, expecting that some of them might be approved in 2013. The USD / JPY pair rose to a maximum of Y93.50 this day. The pair continued to rise after the words of Deputy Secretary of the Treasury, Lael Brainard, who said in Washington that he supports the efforts of Japan to overcome deflation and wake up economic growth in the country. On the next following sessions the couple was held at the highs of Y94.3 levels amid the statement of B7 which indicated that exchange rates should be determined by markets, and the central banks are not authorized to weaken or strength their national currencies. Moreover, the market participants did not react to the decision of the Bank of Japan kept monetary policy unchanged and consider further support for the Japanese economy in the coming months due to the ongoing recession in the country. Instead, the pressure on the Japanese currency had a statement of a potential candidate for the presidency of the Bank of Japan, the former deputy head of Kazumasa Iwata, who reported that the currency has prospects for further depreciation. Also that day’s released data recorded that the Japanese economy in the 4th quarter of 2012 was not able to get out of recession decreasing in GDP by 0.4% in annual terms. The average forecast expected growth of 0.1% compared to the third quarter and 0.4% year on year.
Swiss franc: The dynamics of the Swiss franc against its rivals were slightly influenced after the Swiss National Bank announced that it will continue to hold the franc against the euro at the rate of CHF1. 20 and if necessary, will be ready to take additional measures.
Canadian dollar: Until Friday’s sessions the Canadian dollar traded higher against the U.S. dollar amid the news that the Chinese Cnooc Ltd. was authorized to purchase the assets of the U.S. Nexen Inc., breaking the recent regulatory hurdles and thus completing the deal on acquisition of Canadian oil producer for $ 15.1 billion. The upward move continued even despite the fact that the head of the Bank of Canada Governor Mark Carney said that the need to raise key interest rates in Canada now is not on the agenda as it was before. However, the Friday’s sessions showed weakness of the Canadian currency, as the result the USD / CAD pair strengthened above 1.0050 levels.
New Zealand dollar: The “kiwi” rose for a third day on the data released that the country's manufacturing industry grew at the fastest pace since May last year. The PMI came out higher than 50 levels, which indicated the level of economic expansion, and rose in January to 55.2 from a revised 50.4 in December.
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