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Currency market weekly review (March 03 - March 07, 2014)

March 10, 2014, Monday, 15:46 GMT | 11:46 EST | 20:16 IST | 22:46 SGT
Contributed by Forex-Metal

Euro: Despite the fact that the published macroeconomic data were contradictory, the euro also received support from the last meeting of the ECB. Regulator kept monetary policy unchanged. The head of the ECB, Mr. Draghi was more optimistic, confirming his readiness to continue to stimulate the economy. But the market was focused on growth forecast for 2014 and comments on the improvement of the reports for the last month. Also reports of normalization of financial market conditions were positive for Euro.

In details:

Monday: Rate of the euro retreated from the maximum values against the dollar, while returning to the levels of the session. Little support was data on index of industrial activity, but interest in him was short-lived, and attention gradually began to switch to U.S. reports, which caused the fall of the euro currency. Recall that the growth in the eurozone manufacturing sector weakened in February, but lesser expected than previously. This was stated in the final data, which were published earlier today by Markit Economics. According to the report, the seasonally adjusted purchasing managers' index for the manufacturing fell to 53.2 in February from 54 in January, the highest reading in 32 months. The decline in February was the first in five months. Result was also slightly higher than previously estimated - at 53 points. The index currently remains above the mark of 50 points, which separates growth from contraction for the eighth consecutive month. We also learned that the manufacturing sector continued to show growth in Germany in February, and have expanded more than initially expected. According to the report , the manufacturing purchasing managers index from Markit / BME fell to 54.8 points in February from January's 32-month high of 56.5 . The originally was reported on the significance of this indicator at the level of 54.7 points. The index remained above the neutral mark of 50 points for the eighth consecutive month. The EUR / USD pair fell to $ 1.3759 during the European session.

Tuesday: The euro exchange rate has risen sharply against the U.S. dollar due to the easing of tensions around Russia and Ukraine. Recall that today Russian President Putin announced the completion of a series of military exercises in the western part of Russia, and ordered the troops to return to base.

The growth is also linked to the expectations of the ECB meeting on Thursday and the employment report in the U.S. on Friday. Little impact on the euro was data that showed prices of producers eurozone declined in January, more than expected, which was due to falling energy prices. According to the report, producer prices fell 0.3 % in January, while offsetting an increase of 0.2 %, which was recorded in December. Many experts expect that producer prices will remain unchanged. Excluding energy, producer prices rose 0.1 % after zero change in December. Energy prices fell by 1.4 % in January, compared with 0.5 per cent increase in the previous month. On an annual basis, the decline in producer prices accelerated in February, 1.4 per cent from 0.8 per cent in December. Last change coincided with the estimates of experts. The EUR / USD pair rose to $ 1.3775: during the European session.

Wednesday: The euro exchange rate against the dollar rebounded, but still continued to trade slightly lower. Impact on the dynamics had the reported data for the euro area, on business activity and GDP. The eurozone economy expanded at a faster pace in the fourth quarter, and confirmed the initial estimates and forecasts of experts, helped by an increase in the volume of investment and exports. The report showed gross domestic product grew by 0.3 % in the fourth quarter, which corresponded to an estimate published on February 14. Recall, for the third quarter the economy expanded by 0.1 %. In annual terms, gross domestic product grew by 0.5 % after a 0.3 % drop in the third quarter. Annual rate was also consistent with the preliminary assessment and expert forecasts. The EUR / USD pair fell to $ 1.3706, and then recovered slightly during the European session.

Thursday: The euro exchange rate has increased markedly against the dollar, which was associated with the release of positive data in Germany, as well as the decision of the ECB. Ministry of Economy of Germany stated that the volume of orders in the manufacturing sector in January rose more sharply than expected, mainly due to strong domestic demand, as well as orders from countries outside the euro area. This suggested that the industrial production in Europe's largest economy should continue to grow. According to the report, the orders in the manufacturing sector in Germany to a seasonally adjusted in January increased by 1.2% compared with December. Economists’ orders were on growing by 1.1 % compared with the previous month. It was also reported that domestic demand rose by 1.6 % m / m in January, while export orders increased by 1 percent. Orders outside the euro area rose by 7.2 %, while inside the unit fell 8.8 % after rising 6.9% in the previous month. Add that at today's meeting the European Central Bank decided to leave interest rates unchanged. The Governing Council of the ECB announced that the main refinancing rate, the rate on loans and deposits to remain at 0.25%, 1.00 % and 0.00 % respectively. Recall that the Bank has lowered the discount rate from 0.5 % to 0.25 % in November last year. The EUR / USD pair rose to $ 1.3775, and then retreated slightly during the European session. The EUR / USD pair rose to $ 1.3860 area on comments of the M.Dragi . The ECB intended to keep key interest rates at or below the current for a long time. The ECB President confirmed that his earlier assessment of the situation in the economy remained unchanged; the eurozone is waiting a long period of low inflation and inflation in the coming months in the region will remain near current levels. It will gradually rise over the next period of 2.5 years.  ECB chief said that “recovery in the euro zone continues in slow pace” and geopolitical risks may adversely affect the growth rate. Macroeconomic data for the last four weeks have improved, but “continue to confirm the need to maintain expansionary policies of the ECB," the chairman of the central bank.

In his speech M.Dragi once again drew attention to the fact that the ECB is not targeting the euro exchange rate, although this is crucial for economic growth and inflation in the euro area.

US Dollar: Conflict in Ukraine has lost its sting a bit, which reduced demand for safe-haven currencies. As a result, the dollar was able to demonstrate active strengthening against the yen.

In details:

Monday: The U.S. dollar strengthened against major currencies on the back of strong U.S. macro data. U.S. consumer spending rose in January, more than forecast, together with a sharp increase in income, which increased the likelihood that the biggest part of the economy can sustain growth in early 2014. This was stated in the report, which was submitted to the Ministry of Commerce. According to consumer spending, which accounts for about 70 % of the economy, rose in January by 0.4 % after a 0.1 % increase in the previous month, which was revised to 0.4 %. Experts predicted that the value of this index will rise by only 0.2 %. We also add that the amount of consumer income increased by 0.3 %, after a zero change in December. As it was expected the revenues will grow by 0.2%. Today's report confirms recent data that indicate that Americans are beginning to overcome the effect of the severe winter, and confidence in the world's largest economy will grow.

Manufacturing activity in the U.S. rebounded in February after it’s weakening due to the weather in January, although production decreased. This was published by the Institute for Supply Management (ISM). According to the report, the Purchasing Managers Index (PMI) for the manufacturing U.S. in February rose to 53.2 after an unexpected decline to a minimum of 51.3 in January. Index value above 50 indicates growth in the sector of activity. Economists had expected the index to rise in February to 52.3. In turn, the final data from Markit showed that business conditions in the U.S. manufacturing sector improved in February compared with the previous month, and were slightly higher than those reported in the initial assessment. Corresponding PMI rose to 57.1 points, compared with a final reading for January at 53.7, and a preliminary estimate at around 56.7.

Wednesday: The dollar fell against other major currencies, aided published in U.S. statistics. As shown by recent data that were presented Automatic Data Processing (ADP), in February, employment in the private sector increased markedly, although not enough to confirm the evaluation of many economists. According to a report last month, the number of employees increased by 139 thousand people, compared with a revised downward indicator for the previous month at 127 million ( initially reported growth of 175 thousand jobs). Add that, according to the average forecast of this indicator would grow by 159 thousand
In turn, in February, the index of business activity in the U.S. service sector (ISM Non-Manufacturing) fell to 51.6 points, the minimum for the last four years, with 54 points in January, according to the Institute for Supply Management (ISM). According to experts, the value of this indicator was reduced to 53.8. Exceeding the index level of 50 points indicates growth of business activity in the service sector, while the index value below 50 indicates its decline. All major sub- indices, except one, were in February in the territory of the expansion (more than 50), and some even showed an increase.

British Pound: The British data has not given much reason for optimism, as reports on business activity in the industrial, construction and service industries showed a fall, though they still retained in the growth zone. However, in the service sector index fell less than expected, which had moderate support the British currency, as it gives reason to expect to maintain high rates of economic growth. Meeting of the Bank of England, as expected, did not bring anything new, and response from the pound was not caused.

In details:

Monday: The pound showed sharp fluctuations against the dollar, but in general, was trading in a small range. On the dynamics of trade influenced the British data, which showed that the UK manufacturing sector continued its expansion in February, registering with several large paces than in the previous month. It became known from the survey results, which were released Markit Economics and the Royal Institute of Purchasing and Supply (CIPS). According to the report, the seasonally adjusted purchasing managers' index for the manufacturing sector rose in February to a level of 56.9, compared with 56.6 in January, the figure for which was revised down from 56.7. A reading above 50 indicateed an increase in activity, while a drop below indicates contraction. The index currently remains above the neutral point of the eleventh month in a row. The GBP / USD pair traded in the range of $ 1.67650 -$ 1.67550 during the European session.

Tuesday: Pound rose slightly against the U.S. dollar, as a territorial dispute between Ukraine and Russia began to be resolved. Pressure on the currency was presented data that showed British construction sector continued its expansion in the month of February, but sharply slowed its pace of growth compared to the month of January, as adverse weather conditions violated activity. This was stated in the report, Markit Economics. According to the index of purchasing managers in the construction sector fell last month to a level of 62.6 points, compared with a 77 -month high in January at around 64.6 points. Many experts expected that this figure will decrease only to 63.6 points. I also add that the index remains above the level of 50.0 points, which separates growth from contraction since last May. Studies have also found that higher levels of production and new orders led to a further sharp rise in employment and procurement. The number of new jobs has reached three-month high in February. The total purchase price inflation accelerated to a five-month low in January, as the pressure on the "chain" of supplies contributed to the growth of the burden. As a result, the average price charged by subcontractors, increased at a record pace on record. The GBP / USD pair rose to $ 1.6718 during the European session, but then retreated slightly.

Wednesday: Pound has risen considerably against the U.S. dollar, which was helped by the submitted data and expectations of tomorrow's meeting of the Bank of England. As it became known, the UK services sector continued to show a steady expansion in February, but a little slow pace compared to the previous month. Support the sector continued to provide a significant increase in new orders. The data demonstrated that the PMI for the services sector by Markit Economics fell to 58.2 in February from 58.3 in January. The latter value was the lowest since June last year, but continued to show a sharp increase in activity on a monthly basis. Experts had expected a decline of the index to 58.0. Add growth recorded for 14 consecutive months. Recent increase in activity was supported by new orders. Since the number of orders continued to grow rapidly, the company decided to raise the number of staff in accordance with the current volume and future activities
The GBP / USD pair rose to $ 1.6727 during the European session.

Thursday: Pound fell to session low against the dollar, despite the significant growth earlier that allowed establishing a new high. Such a significant swing pair was noted after the announcement of the Bank of England of its rate decision and asset purchase program. Note that the Bank of England today did not bring any surprises, once again leaving the rate at a record low 0.5%. Last time the Central Bank changed the level of rates March 5, 2009, lowering it by 0.5% to 0.5%. Was also decided to keep the size of the asset purchase program at ? 375 billion, the Central Bank said that keep rates at the current level as long as the unemployment rate / p Britain will not fall to the level of 7% , which will not happen until 2016 . Experts pointed out that it is clear that the authorities want to keep policy accommodative as long as possible, to ensure the stability of the economic recovery. However, the picture on the labor market combined with data on growth suggests that the Bank is unlikely to convince markets that rates increase.

Little impact on the pound had previously presented data which showed that house prices rose by 2.4 percent in February, compared with an increase of 1.1 percent in January, which significantly exceeded the average forecast experts at 0.6 percent. We also add that in the last three months (February), housing prices were 7.9 percent higher than a year earlier, compared with 7.2 percent in the previous three-month period (January). In Halifax reported that the improvement of the economic situation, the fall in unemployment and an increase in confidence helped boost demand, but the pressure on household finances and slowing inflation restrained growth in housing prices. The GBP / USD pair rose to $ 1.6795during the European session.

Japanese Yen: Earlier in the week, amid reports on launch of North Korea's two medium-range missiles, the USD / JPY pair noted 4- week low at 101.20, but later started pretty strong fortification, which was stimulated by a temporary silence in the Russian - Ukrainian conflict. Additional support the couple received from an index Nikkei, as well as on reports that the Bank of Japan was considering buying foreign bonds as part of its quantitative easing program.

In details:

Monday: The yen rose against all major currencies as a result of increased demand for safe-haven currencies, after entering the Russian armed forces on the territory of Ukraine. It was learned that U.S. Secretary of State tomorrow John Kerry will travel to Kiev to meet with Ukrainian leaders and offer support. Tension in the region has reached its peak since the “cold war”. The USD / JPY pair dropped to Y101.20 during the European session.

Wednesday: The yen fell against the dollar at the fastest pace in the last seven weeks after Russian President Vladimir Putin said that he sees no urgent need for the introduction of Russian troops on the territory of Ukraine, as well as that culminated in the Russian military exercises in no way connected with the situation in Ukraine. The USD / JPY pair rose to Y102.50 during the European session.

Thursday: The yen touched week low against the dollar after the Japanese government announced that the state pension fund (GPIF), is the largest in the world, no longer need to focus on investment in domestic bonds, taking into account the acceleration of inflation in the country. The report, prepared by the group, says that GPIF should seek opportunities for investment that could bring him an annual income of 1.7% plus the cost of increase of salaries of employees. The USD / JPY pair rose to Y102.81 during the European session.

Canadian Dollar: The Canadian dollar rose against the U.S. dollar on a background of the outcome of the meeting of the Bank of Canada. Central Bank of Canada said that the downside risks to inflation are still important, despite the recent increase in consumer prices. Given the significant weakness of the economy and competition in the retail sector, inflation is likely to remain well below the target level of 2 % this year.

Bank of Canada, as expected, on Wednesday left its benchmark one-day interest rate unchanged at 1% level. The bank said that “in general, the fundamental drivers of growth, inflation in Canada continue to gradually strengthen," and the balance of risks” remained within the zone for which the current stance of monetary policy is appropriate”, while the risks associated with elevated imbalances households” have not changed significantly."

Australian dollar: The Australian dollar strengthened slightly updating lows after Australia's central bank left interest rates unchanged at a record low 2.5 %. In its statement accompanying RBA Governor Glenn Stevens noted that the recent decline in the Australian dollar will balance economic growth, but the rate remained in high by historical standards.