After the good performance of financial markets since the beginning of the year, the FX markets eased back from recent peaks, as the post-cliff new-year rally faded and attention turned to the start of the corporate earnings season. Across the Atlantic, the European Central Bank reversed the trend, by sending a strong signal that it is unlikely to cut interest rates. Draghi stated that “economic activity should gradually recover in 2013” due to “considerable improvements” in the financial markets”.
The euro started the week at 1.3070. The single currency then advanced against the dollar, ahead of the ECB meeting to 1.3130. The single currency range traded between 1.3050 and 1.3130, while markets anticipate the ECB’s decision. The euro rose against its American counterpart, after a successful Spanish bond auction, pushing the euro to the 1.3120 level. The single currency then surged on Thursday, after the ECB decided to keep the benchmark interest rate unchanged. The ECB Presidents’ upbeat tone spurred a sharp rally for the euro against the dollar hiking the single currency to the week’s high of 1.3366. The euro closed at 1.3343. The sterling pound endured a volatile week. Cable opened the week at 1.6070, only to surge on Monday to reach 1.6130, after good housing figures. The sterling pound then dropped to 1.5992 after disappointing economic figures. Cable followed suit with the euro, hiking on Thursday with the optimism spurred by ECB President Mario Draghi, to peak at 1.6180. Cable closed the week at 1.6132. The Japanese yen opened the week at 88.15, strengthening against the dollar, to touch a low of 86.84 on Wednesday. The yen then weakened significantly against the dollar, as the newly elected prime minister, Shinzo Abe, continued to stack pressure on the Bank of Japan Governor, Masaaki Shirakawa, to double the central bank’s inflation goal. The Japanese yen hiked to a high of 89.44 on Friday, after the Japanese cabinet approved a ¥10.3tn ($116.9bn) stimulus package. The Japanese yen closed the week at 89.18.
Crude Oil Inventories Rise
US crude oil inventories increased by 1.3 million barrels for the week ending on 4 January. At 361.3 million barrels, crude oil inventories are well above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 7.4 million barrels last week and are well above the upper limit of the average range. Finished gasoline inventories decreased while blending components inventories increased last week.
More Americans than forecasted filed for first-time claims for unemployment last week, indicating that improvements in the labour market remain irregular enough to maintain current employment levels. Jobless claims rose by 4,000 from 367,000, to 371,000, against a forecasted drop of 7,000. A consistent decline in firings, along with a rise in payrolls is needed to spur consumer spending, which counts for 70 percent of the US economy.
The US trade deficit unexpectedly widened by 15.8 percent in November to $48.7bn while analysts were expecting the deficit to shrink to $41.3bn, the gap’s widening was driven by a 3.8 percent increase in imports, the largest gain in eight months, which gave a positive signal for consumer spending.
The European Central Bank President, Mario Draghi, addressed optimism and positive contagion into financial markets, at the ECB’s press conference. The ECB have kept the rate unchanged at 0.75 percent, before Draghi’s speech, which dwelled into a positive note. The central banks’ decision to keep rates unchanged was unanimous. The President of the ECB said that “we are now back in a normal situation from a financial viewpoint, but we are not at all seeing an early and strong recovery”, and that the central bank takes-note of the “significant improvements” in financial market conditions in recent months.
Leader of Euro-area finance ministers, Luxembourg Prime Minister Jean-Claude Juncker, resonated Draghi’s positive comments by stating that “the worst is over, but what we still have to do is difficult”. The policy makers’ comments spurred the single currency to its biggest gain in four months versus the dollar and to its strongest since July 2011 against the Japanese Yen. Moreover, Spain’s 10-year borrowing costs, which hit a Euro-era record of 7.75 percent in July, fell below 5 percent for the first time since March, after a successful bond sale.
Unemployment rate in the eurozone rose to an all-time high in November as the fiscal crisis and tougher austerity measures worsened Europe’s economic worries. The unemployment rate in the 17-nation region rose to 11.8 percent in November, from 11.7 percent in October.The Peninsula
