Last week was somewhat quiet comparing with the previous two weeks where we witnessed the German constitutional court ruling, which cleared the way for ratification of the eurozone’s bailout fund as well as the Federal Reserve’s announcement of a third round of quantitative easing. During the week, sentiments weighed down by mixed economic data, which affected the FX market and manipulated its performance.
The US dollar gained back some strength last week as it started weak before turning the momentum and gaining some strength peaking on Thursday. This is shown in the performance of the Dollar Index, which mounted from a low opening level of 78.85 to a high of 79.66 on Thursday after data from China and Japan added to evidence that Asian economies are slowing, spurring demand for the safety of US Treasuries.
The euro, on the other hand, took a sudden turn and lost some momentum over the week, dropping the most in two months against the US dollar, as services and manufacturing sectors in the region shrank to a three-year low, adding to concerns that the central bank will need to do more to spur growth and help the zone’s sovereign debt crisis. The currency started the week strong trading at 1.3130 level to a high of 1.3172 before turning down hitting a low of 1.2920 on Thursday and ending sessions at 1.2980. The Sterling Pound had a somewhat similar performance opening at 1.6216, and weakening slowly over the week to a low of 1.6165 on Thursday, before taking a different turn rallying to a near 13-month high against a weak US dollar on Friday after UK borrowing data was less than feared, closing sessions trading at 1.6230. The Japanese yen started the week with a negative outlook and lost some strength against the greenback, trading as high as 79.22 towards the middle of the week, before turning the momentum around and strengthening against most of its peers as demand for the perceived safety for the nation’s assets increased, closing the week as strong as 78.17.
As far as commodities are concerned, Gold rose 13 percent this year, reaching a six-month high of $1,787.38 an ounce on Wednesday as traders extended their bullish streak and analysts forecasted record prices by next year after central banks pledged more action to bolster economic growth. The commodity closed the week trading at $1,773.10.
On the other hand, oil had a negative performance last week and lost momentum after data indicated that the oil market is sufficiently supplied, and additional crude is coming from Saudi Arabia, Canada, and the US. The commodity started the week trading at $99 per barrel, and erasing these gains with a downward movement throughout the week closing sessions at $91.80 level.
US trade deficit falls
The US current account trade deficit decreased 12.1 percent during the second quarter of this year, pushed lower by an increase in American exports and cheaper oil imports. The recent data showed that the current account deficit totalled $117.4bn, which compares with a revised deficit of $133.6bn in the first quarter, the largest in three year.
Sales of previously owned homes and work on single-family projects climbed in August to the highest levels in two years, signalling the residential real estate market is contributing to the US economic recovery. The most recent reading showed an increase of 7.8 percent to a 4.82 million annual rate, the most since May 2010, compared with 4.47 million, previously.
More Americans than forecast filed claims for unemployment benefits. The number dropped by 3,000 in the week ended September 15 to 382,000 applicants, compared with 385,000, previously. The labour market was expecting a larger drop to 375,000 as forecasted by economists, adding to signs of weakness in the world’s largest economy.
Eurozone debt recovery
The European markets seemed to have absorbed the positive momentum and the optimism, which came with the bond-buying program and the German court ruling news. Now, markets is losing some momentum and realizing that the fundamental issues are still there and more central bank’s actions might be needed soon.
Greek Prime Minister Antonis Samaras struggled to clinch agreement with his coalition partners on an ¤11.5bn ($14.9bn) budget-cut package, which is a key to receive international aid funds. This conflict put more pressure on the Greek leader to show the European leaders and international creditors that Greece is on track to cut their deficit and held accountable to their commitments made earlier this year and revisited during his last visit with the German Chancellor Angela Merkel.
Another spotlight in the market is Spain next bailout plan. Officials reported that Spain could be poised to announce an economic reform plan next week, as European Union authorities are working with the Spanish government to come up with a plan to pave the way for a new rescue plan and unlimited bond buying by the European Central Bank through the European Stability Mechanism (ESM) programme. Yet, Spain managed to sell debt (bonds) on Thursday in an auction that met with strong investor demand despite questions about the country’s bailout plan.
UK inflation slows
The nation’s inflation slowed in August as prices for furniture and clothes rose less than a year earlier and increases in gas and electricity were not repeated. Consumer prices rose 2.5 percent in August versus 2.6 percent in July. While the Bank of England has forecast that inflation will continue to ease toward its 2 percent target, upward pressures have emerged as oil costs increase and a drought in the US pushed up food prices. That may open divisions among policy makers over whether they should expand their stimulus programme again.
The Peninsula
