The US dollar started the week on a soft tone against a basket of currencies as the risk rally sparked by the unanimity of the ECB’s decision combined with positive comments from Mario Draghi, continued.
The greenback started to gain traction at mid-week as data released from the US manufacturing sector disappointed the market and pushed investors towards safer assets. However, better-than-expected employment and housing data in the US along-side falling borrowing costs in Spain fuelled the risk-on trade and sent investors chasing higher-yielding assets such as stocks and abandoning their safe-havens. Nonetheless, the move was limited by constant US debt concerns.
The euro reached a high of 1.3404 as the risk rally from the previous week continued. However, the single currency lost most of its gains after comments from EU Finance Minister Jean-Claude Juncker that the euro level is “dangerously high,” pushing the currency to the low of the week at 1.3257. The currency gained dramatically on Thursday as positive figures from the US and China pushed investors to riskier assets. The Euro closed the week at 1.3321.
Cable lost grounds throughout the week, as sentiments on the economy remained vulnerable after a recent series of weak economic data, including a contraction in the services sector in December that fuelled concerns over a triple-dip recession. The sterling pound started the week at 1.6132 and then reached a high of 1.6155 but quickly lost its gains. The pound broke a number of key support levels to reach a low of 1.5854, and closed the week at 1.5870.
The Japanese yen continued to depreciate across the board, as investors anticipate aggressive bond purchasing programmes to be added to match the expected target of two percent on the Bank of Japan upcoming meeting today and tomorrow. The yen gained some momentum amid comments from the Japanese economics minister that a weaker yen would hurt the economy. On Friday, the yen dropped against the greenback to reach 90.21 amid news that the BoJ will engage in an unlimited bond buying programme, an effort to push inflation to two percent, its highly anticipated target rate. The yen gained some footing as concerns over the US debt ceiling pushed the currency to 89.70 levels. The Japanese yen closed the week at 90.10.
The Federal Reserve Bank of Philadelphia’s general economic index dropped to — 5.8 from 4.6 in December. Readings lower than zero signal manufacturing in the area covering eastern Pennsylvania, southern New Jersey and Delaware is contracting.
The report follows New York Fed data released earlier this week showing factory activity shrank for a sixth straight month and raises the risk manufacturing, once a pillar of the recovery, will again weaken in early 2013. Looming changes in federal spending and stagnant prices give companies little reason to expand inventories, which may hurt producers. The Empire States Manufacturing Index dropped to -7.8 from the previous -7.3.
The rebound in US homebuilding accelerated in December, capping the best year for the industry since 2008 and adding to signs residential real estate is contributing to economic growth. Housing Starts climbed 12.1 percent last month to a 954,000 annual rate, exceeding expectations. In a separate report, building permits, a measure for future construction, climbed less than starts, indicating that the industry may also have acquired a lift from unseasonably warm weather, a sign that the industry will take a break in the coming months. The number of authorisations issued climbed 0.3 percent in December to a 903,000 annual rate, the most since July 2008, from a 900,000 pace in November.
Consumer sentiment unexpectedly deteriorated for a second straight month to its lowest level in over a year in January, with many consumers citing the recent “fiscal cliff” debate. The sharp drop in sentiment over the last two months coincides with bitter federal budget negotiations that have led to higher taxes for many Americans. The Thomson Reuters/University of Michigan’s preliminary reading on the overall index of consumer sentiment came in at 71.3, the lowest reading since December 2011, down from 72.9 the month before. The Index was expected to increase to 75.
Retail sales in the US rose more than expected indicating that consumers looked beyond the political bickering regarding the “Fiscal Cliff” at the end of the year. Sales climbed by 0.5 percent, the biggest gain in three months, after a revised 0.4 percent increase in November that was larger than previously reported.
The number of Americans filing new claims for unemployment benefits tumbled to a five-year low last week, a hopeful sign for the sluggish labour market. Claims fell 37,000 to a seasonally adjusted 335,000, the lowest level since January 2008.
Euro-area industrial production unexpectedly fell in November, adding to signs the 17-nation currency bloc’s contraction deepened in the fourth quarter. Output in the euro area dropped 0.3 percent from October, when it declined a revised one percent.
British inflation held at 2.7 percent for the third month running in December, in line with forecast as a rise in gas and electricity bills was curbed by falls in fuel costs. The Office for National Statistics said utility prices rose 3.9 percent on the year while fuel costs fell by 0.2 percent. Stubborn inflation, above the Bank of England’s two percent target since November 2009, is likely to have been a key argument against quantitative easing to support growth at the bank’s monthly policy meeting previously. High inflation has put pressure on consumer spending, which accounts for around two thirds of all expenditure in the British economy.
UK retail sales unexpectedly fell in December as consumer uncertainty extended into the key Christmas trading season for British stores. Sales including fuel declined 0.1 percent from November. Economists expected a 0.2 percent increase. Household goods fell the most in almost three years. From a year earlier, total sales rose by 0.3 percent.
The Peninsula
