The United States economy gained traction in the midst of a post-crisis environment, leading the financial markets towards recovery, as better than expected economic indicators bloom markets with positive sentiment, and pushing global indices on to the green side, with the Dow Jones reaching record highs. The economy in the US is in a growing phase, in which it created great momentum towards recovery. Better economic figures raised the question whether the Federal Reserve will alter its accommodative policy of quantitative easing. Moreover, sentiment on the Euro remained supported, after ECB President Draghi said monetary policy would remain firmly accommodative and added that confidence was returning to financial markets. In addition, the Bank of England have refrained from any further easing, while keeping the interest rate unchanged.
The Euro started the week at 1.3022, as positive sentiments overwhelmed the financial markets. The single currency rose to 1.3075 levels, after a report showed that manufacturing and services in the Eurozone contracted less than economists forecast last month. The Euro then plummeted to 1.2965 after a report showed that Euro area exports fell in the fourth quarter for the first time in 3-years. The Euro surged following the ECB’s decision to keep interest rates unchanged. The single currency continued to rise to touch a high of 1.3134, as President Mario Draghi held to his view that the Eurozone will gradually recover later this year and then closed the week at 1.3010. The Sterling Pound endured a volatile week. Cable opened the week at 1.5038, only to rise to 1.5199, ahead of the UK’s services report, which proved to be better than expected. The Sterling Pound plunged against the US Dollar, ahead of the Bank of England 2-day meeting to a low of 1.4967 as more easing measures were priced in the market. The currency then climbed to 1.5083, after the BoE refrained from boosting its asset purchase target. The Pound closed the week at 1.4920. The Japanese Yen opened the week at 93.59, weakening against the US Dollar throughout the week. The JPY continued to weaken ahead of the US payroll report, as expectation of an improving labor market will convince the Federal Reserve to end its program of asset purchases. The Japanese Yen touched a high of 96.55, as the greenback strengthens to its highest level since August. The Swiss Franc weakened against the greenback after a better than expected jobs report from the US. The CHF opened the week at 0.9429, weakening to a high of 0.9489 on Thursday, in tandem with the Euro, against a stronger US Dollar. The Swiss Franc closed the week at 0.9528.
ISM Non-Manufacturing PMI Expands
Manufacturing industry in the United States expanded in February, at the fastest pace in a year, an indication that financiers, shielded with market optimism, are dwarfing concerns and disagreements over the nation’s budget deficit in Washington. The US service industry, which equates to almost 90% of the county’s economy, is being supported by a sustained level of consumer spending. The Institute for Supply Management’s factory index increased to 56.0, ahead of January’s figure of 55.2. As the number above 50 signals expansion, the index surpassed an expected slip to 55.0. A continuous hike in the manufacturing industries will make-up for three straight months of contraction, and will create more jobs.
Unemployment Claims Drop
Fewer Americans filed for first-time claims for unemployment last week, indicating that demand is still resilient enough to maintain current employment levels. Unemployment benefits unexpectedly dropped last week to a six week low. The number of Americans filing applications for unemployment benefits fell by 7,000 to 340,000, lower than the expected 354,000. Advancing stock prices and housing recovery are fueling a wave of good sentiment in US households, making it easier for Americans to endure higher payroll taxes and look beyond the nation’s debt disagreements in Washington.
Change in Non-Farm payrolls came much better than expected. The US economy payrolls increased by 246,000, against a forecasted 165,000, and better by 79,000 from the previous figure.
Europe
ECB Keeps Interest Rate Unchanged
To no one’s surprise, the European Central Bank have kept the key benchmark interest rate unchanged at 0.75%. The Euro regained ground across major currencies after the decision outcome of no immediate need for further easing. “We always think and study and reflect, but we are not committing to or planning anything special,” said Mario Draghi. “Yes, we have discussed the possibility. We wouldn’t pre-commit to anything as specific as a rate cut in the future”, the ECB President said over the possibility of an interest rate cut. Moreover, Draghi has stated that inflation has declined below 2% in February as expected, and that inflationary pressures should remain contained over the coming months, while “the underlying pace of monetary expansion continues to be subdued”, indicating that the ECB will continue with its accommodative monetary policy stance. ECB President reiterated that the “medium term risks for inflation remained balanced and that the positive impact from improving financial conditions on economic fundamentals may need time to materialize”. After dismissing comments over the existence of a “currency war”, Mr. Draghi said on the matter “that the exchange rate is not a policy target for the ECB. The nominal and real exchange rates are by, and large continue to be near their long term averages. The exchange rate is very important for growth and price stability. The central bank will stick with the G20 consensus”. The ECB President added that the central bank “will continue to look at the exchange rate as part of the overall assessment of the current situation”. After some turbulence in the the markets following the Italian elections, Draghi stated that Italy “should continue on the structural reform path”.
THE PENINSULA
