Currency market weekly review (February 24 - February 28, 2014)
Euro: The macroeconomic reports supported the European currency this week. The data on business sentiment in Germany were the best since 2011. Key support for EUR / USD pair was received from the data on the consumer price index in the euro area. Report offered hope that at the next meeting of the ECB still will not soften its monetary policy.
Monday: The euro fell against the dollar after rising data on the business climate in Germany. German’s business climate indicator unexpectedly strengthened in February to the highest level since July 2011, despite the drop in expectations. These results are presented on Monday institute IFO. Business climate index rose to 111.3 from 110.6 in January. According to the average expectations index slightly rose to the level of 110.7. In addition, the current conditions index improved to 114.4 in February from 112.4 a month ago. Result was higher than expected level of 112.8. On the other hand, the expectations index fell to 108.3 in February from 108.9 in January. The result was predicted to drop to 108.1.
Also today published the final data on inflation in the eurozone. Consumer prices in the euro area grew at a faster pace in January than previously thought, but inflation remained unchanged compared to December showed the revised data published by Eurostat on Monday. Harmonized index of consumer prices (HICP) rose by 0.8% year on year in January. The result was unchanged compared with the growth rate in December. Preliminary estimates were at the level of growth of 0.7 percent in January.
At the same time, core inflation, which excludes energy, food, alcohol and tobacco, rose to 0.8 percent from 0.7 percent in December, according to initial estimates. Inflation has remained below the target level of the European Central Bank “below but close to 2 percent," the twelfth consecutive month.
In January, prices for foodstuffs, alcohol and tobacco rose 1.7 percent, while energy prices fell 1.2 percent. The cost of non-energy industrial goods increased by 0.2 percent, and prices of services expanded by 1.2 percent. On a monthly basis, consumer prices recorded a decline of 1.1 percent in January. The EUR / USD pair rose to $ 1.3770, and then fell to $ 1.3719 during the European session.
Tuesday: The euro rose against the dollar on GDP data in Germany. The German economy grew moderately in late 2013 as originally anticipated at the beginning of this month, final data showed Destatis. Gross domestic product increased by 0.4 % compared with the previous quarter, which is slightly faster than the expansion of 0.3 %, which is seen in the third quarter. This was in accordance with the calculation results, published on February 14. The expenditure breakdown of GDP showed that exports of goods and services grew by 2.6 % compared with the third quarter. At the same time, imports increased by no more than 0.6 %. As a result, the balance of exports and imports contributed to the growth by 1.1 % age points of GDP and is a key economic engine in the fourth quarter. Investments grew by 1.4 % in quarterly terms. Nevertheless, stocks declined significantly, leading to slower economic growth by 0.8 %age points. While government spending remained unchanged from the previous quarter, household spending on final consumption decreased slightly by 0.1 %.
In annual terms with the calendar adjusted GDP grew more than doubled to 1.4 % from 0.6 % in the third quarter. In addition, the price-adjusted GDP grew by 1.3 % compared with 1.1 % in the previous period. Results in the fourth quarter correspond to preliminary estimates. The EUR / USD pair rose to $ 1.3765 during the European session.
Wednesday: The euro fell against the dollar retreated from highs reached on data from Germany. According to a survey by GfK consumer confidence index in Germany reflected the improvement in March. Consumer confidence index rose to 8.5 points from 8.3 points in February. The index is projected to grow only had 8.3 points from February's initial value of 8.2. After five successive increases in economic expectations recorded a moderate decline of 3.4 points to 31.9 in February. In contrast to economic expectations, income expectations continued to rise in February to 48.6 from 46.2. They once again improved slightly from a 13-year high reached in the previous month.
Later, the EUR / USD pair moved down at the end of the European session, a fresh daily low. However, the pair remained within the range this week. The EUR / USD stuck at around $1.37, and intraday ranges are getting smaller and smaller.
The euro exchange rate decreased moderately against the dollar, despite exceeding the forecast of labor market data in Germany. Euro has not responded to report that the German unemployment fell more than expected, but the unemployment rate remained stable in February as was presented by the Federal Agency of Labour. Number of people out of work fell by 14,000 to 2.914 million in February. Unemployment is projected to drop by was 10,000. At the same time, the unemployment rate to a seasonally adjusted remained stable at 6.8 percent in February. In turn, the French consumer confidence index fell slightly in February, offset by the gain recorded in the previous month, as concerns over rising unemployment continue to plague the country, reducing the economic expectations. The consumer confidence index fell to 85 points on January 86, showed a survey conducted by the statistical office INSEE. Economists had expected the index to remain unchanged at 86. Views of households on the general economic situation in the next 12 months deteriorated sharply in February. Corresponding index decreased by 5 points. Score consumers their financial situation over the next 12 months a little weakened. The EUR / USD pair fell to $ 1.3645 during the European session.
US Dollar: Although the situation in Ukraine continues to heat up, and geopolitical risks remain, the dollar could not strengthen in the middle of the week. It, however, still came up with some losses against major opponents.
Tuesday: The dollar gained on risk aversion, which increased on U.S. data and the prevention of the formation of bubbles made by Mr. Tarullo . Daniel Tarullo (Fed governor in charge of financial regulation), said that a small increase in risk in the credit markets, but this does not mean that in response to the central bank should raise interest rates. According Tarullo, the Fed should not exclude raising rates to combat potential "bubble” in asset markets, but it should first try to use, and then hone their regulatory tools to identify these threats to financial stability. Nevertheless, he added, raising interest rates in response to every little sign of the "bubble” will have significant negative consequences for the economy.
Report of the Federal Reserve Bank of Richmond showed in February manufacturing conditions in the region have deteriorated compared to the previous month. Corresponding index of manufacturing activity fell to 6 points in February compared to 12 in January. Economists had expected the index to rise to 13 points.
Meanwhile, a report from the Conference Board showed consumer sentiment index fell to 78.1 from 79.4 in January (revised from 80.7). Economists expected a decline to 80.2. Assess the current situation index rose from 77.3 to 81.7. This component of the index rose to its highest in nearly six years level. The expectations index fell sharply - from 80.8 to 75.7.
Wednesday: The dollar grew on upbeat U.S. data. Sales of newly built homes rose in January, which was an unexpected sign of strength after a long period of weakness in the housing sector. Sales of new single-family homes rose 9.6% to a seasonally adjusted annual rate of 468,000 compared with the previous month, reaching the highest level since July 2008. Result December was revised up to 427,000. Economists had expected home sales in January to fall to an annual rate of 406,000. Increase last month was due to sales growth in the Northeast, where they rose by 73.7 % to compensate for the decline of the previous month. The South and West was also recorded growth, but new home sales fell in the Midwest.
Thursday: The U.S. dollar fell against its competitors, which was associated with the release of weak U.S. data and Fed chief comments. It is learned that orders for durable goods fell to a seasonally adjusted 1% from December. This was the second consecutive decline after orders fell 4.2 % in December. However, with except for the volatile transportation category, the orders rose by 1.1 % last month, showing the strongest growth since May. Economists forecasted that overall orders for durable goods fell 0.7% in January.
Meanwhile, another report showed that the number of initial claims for unemployment benefits rose by 14,000 and amounted to a seasonally adjusted 348,000 in the week ended February 22. The figure for the previous week was revised down to 334,000 from 336,000. Economists had predicted that jobless drop to 333,000. The four-week moving average of claims remained unchanged last week at 338,250. Analyst Ministry of Labour said there were no special factors that could affect the data last week.
As for the speech of the Chairman of the Federal Reserve Janet Yellen , she noted : the Fed will continue to reduce the amount of quantitative easing (QE), despite the fact that the recovery of the U.S. labor market is still far from complete. Yellen also reiterated statements made on February 11 at the House of Representatives. Initially, her performance in the Senate Banking Committee to be held on February 13, but was postponed due to inclement weather.
Moreover, Yellen confirmed that the base rate is likely to be maintained at the current level (0-0.25 %) for a long time after the U.S. unemployment rate falls below 6.5%, while maintaining the inflation forecast is not above the level of 2.5 %. She said: decisions regarding reductions in the rate of quantitative easing are not predefined and FOMC will be taken depending on the evaluation of the situation on the labor market and inflation.
British Pound: Some support for the British currency was received from the sale transaction of Vodafon’s 45 % share to the mobile company Verizon Wireless American, the Verizon’s partner. Data on the rate of economic growth was not too pleased. The Q4 GDP was slightly weaker than expected. The annual rate ratio was 2.7 % vs. 2.8% expected. But positive for the pound is that growth was recorded in various areas: industry and manufacturing, and consumer sectors, and services. Thus, we can draw conclusions about the continuing recovery of the economy.
Monday: The pound is trading slightly higher against the dollar, which is associated with the comments and the Bank of England published data. Recall, Bank of England Governor Mark Carney said that the new phase of further policy intentions should give a guarantee to maintain the economic recovery officials. According to Carney , the revised policy system further intentions reflects the need for a more complex set of judgments than was necessary in the first stage , when the link was only on unemployment . Bank changed its approach after unemployment fell faster than predicted officials up to the 7 percent threshold for considering an increase in the interest rate. Recent data showed that sentiment among UK service sector companies have improved to all-time high in the three months to February, while the sector recorded growth of the third quarter in a row. These are the results of a survey published by the Confederation of British Industry (CBI). The latest survey from the CBI service sector has shown that trust between service providers in the consumer sector, as well as in the professional services sector grew at the fastest pace since the management of records about fifteen years ago. Optimistic attitude reflected a remarkable recovery in business volumes, which rose the most since 2005, which resulted in the first ever recorded growth of profitability since 2007. Also forecast business volumes grew strongest pace in a decade, with the majority of the surveyed firms stated that they intend to raise the number of staff in the next quarter. The GBP / USD pair fell to $ 1.6595, but then rose to $ 1.6679 during the European session.
Tuesday: The British pound rose against the U.S. dollar, supported by data and comments of the Bank of England Mr. McCafferty . Mr. McCafferty said in an interview with Reuters on Tuesday that the first term of the Bank of England rate hike will depend greatly on the state of inflation. In the case of acceleration of its growth may increase more than previously . Yet he stressed that the projections assume the first increase in Q2, 2015, and it is quite reasonable. Moreover, McCafferty said that the current growth of the pound does not harm British exports, but if it continues, the Bank of England will be forced to react.
With regard to the published statistics, the number of mortgage approvals in the UK rose by more than expected, and reached its highest level since September 2007, data showed the British Bankers Association (BBA). Number of loans for house purchase rose to 49,972 in January, the highest level since September 2007, from 47,086 in December. The expected level was 47,150. Including re- mortgages, general statements made 82,151 compared to 78,584 a month ago.
Another report showed that UK retail sales rose at the fastest pace since June 2012. These are the findings of research trends distributive trade from the Confederation of British Industry (CBI). About 45 % of respondents reported that sales rose compared with the previous year, while 8 % said they were down. This gave the balance 37 per cent. Retailers expect sales to grow at a steady pace in the next month - 43 % expect growth, 15 % expect a recession. The balance was 28 %. Investment intentions for the year ahead given the balance of 17 %, which is the strongest level since November 2010. Retailers also expect that their overall business situation will improve over the next three months. The GBP / USD pair rose to $ 1.6708 during the European session.
Wednesday: The British pound rose moderately against the U.S. dollar after the release of the revised GDP data. The UK economy grew in line with preliminary estimates for the fourth quarter and for the full growth in 2013 were weaker preliminary calculations. Such data are the Office for National Statistics (ONS).
Gross domestic product expanded 0.7 % in the quarterly measurement, according to a preliminary estimate published on 28 January. Growth rate slowed down slightly from the 0.8 % increase in the third quarter. In annual terms, the economy grew by 2.7 % - growth has been revised downwards to 2.8 %. In general, the 2013 GDP growth was revised down slightly to 1.8 % from 1.9 %.
With regard to production, mining, including oil and gas production fell by 1.9 % in the fourth quarter. Total production gained 0.5 %, compared with a preliminary estimate of 0.7 %. Construction volumes rose 0.2 % instead of 0.3 % fall estimated initially.
Increase in the dominant services sector confirmed at 0.8 %. Meanwhile, production in agriculture, forestry and fishing fell by a revised 0.1 %.
Another report from the ONS showed that production in the services sector grew by 3.2 % in December compared with the previous year. Compared with November services index rose 0.2 %.
According to preliminary results of the ONS, only gross fixed capital formation increased by ? 1.3 billion or 2.4 % in the fourth quarter compared with the previous quarter.
At the same time, business investment grew by an estimated 0.8 billion pounds or 2.4 % compared to the previous quarter and were 8.5 % higher compared to the fourth quarter of 2012. The GBP / USD pair rose to $ 1.6705 during the European session.
Japanese Yen: The USD / JPY almost since the beginning of the week headed for a gradual weakening in response to fears of default on sovereign debt of Ukraine. The yen was supported by its own statistics, consumer price index increased, and there has been seen a positive momentum in the manufacturing sector.
Wednesday: The course of trading was influenced by words of board member Koji Ishida BOJ. He noted that because of the tax increase in April economic data in the first half can be very confusing and the Bank of Japan should be very careful when evaluating the economy. “In the first place should not hurry with the expansion of incentive programs “- said Ishida. The USD / JPY pair rose to Y102.45 during the European session.
Canadian Dollar: The Canadian dollar fell slightly against the U.S. dollar, which was associated with the release of data on the balance of payments. As it became known, the current account deficit widened in Canada in the fourth quarter of 2013 and the fourth largest in history - mainly due to a higher deficit in trade in goods. The current account deficit rose to a seasonally adjusted 16.01 billion Canadian dollars ($ 14.39 billion), compared with a revised deficit in the third quarter at 14.80 billion Canadian dollars. Deficit in the previous quarter originally estimated at 15.47 billion Canadian dollars. Economists had expected a deficit of $ 16.5 billion Canadian dollars.
Australian dollar: The Australian dollar fell against all major currencies after iron ore prices fell to a seven-month low. The cost of ore to Chinese imports got cheaper for a fifth day, dropping yesterday to $ 119.10 per tonne, the lowest level since July 1.
Swiss franc: Pressure on the Swiss franc had data on slowing economic growth. The economic growth in Switzerland slowed more than expected in the fourth quarter as exports declined amid weak global demand for chemical and pharmaceutical products. This was announced on Thursday, the State Secretariat for Economic Affairs (SECO). Real GDP growth slowed more than expected to 0.2 percent from 0.5 percent in the third quarter. Projected growth should have been reduced to 0.4 percent. Economic growth has slowed down the second consecutive quarter. First estimates for the full year, based on quarterly data showed that economic growth accelerated in 2013 against the backdrop of private consumption and investment. The GDP grew by 2 percent in 2013 after expanding by 1 percent in 2012. SECO expects that growth will accelerate to 2.3 percent in 2014.
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