NBK Weekly Money Markets Report 26-9-2010
A Weaker Dollar
Last week, the US Dollar dropped sharply against a basket of currencies, as expectations of further monetary easing by the U.S Federal Reserve pressured the currency. The Euro rose to a 6-month high against the US Dollar at 1.3495 after reaching a low of 1.3025 earlier during the week. The Sterling Pound traded between a low and high of 1.5500 and 1.5843, pressured by talks that the Bank of England might consider more quantitative easing to help boost the economy as well. The Japanese Yen started the week on a weaker footing following last week’s intervention by the Bank of Japan, trading at 85.80 levels, however gained some momentum on Friday reaching a low of 84.09 as talks of a second possible intervention diminished and rumors that the BOJ governor may resign were denied. The Australian Dollar rallied last week reaching a high of 0.9615 boosted by possible interest hikes by the Reserve Bank of Australia. Finally, the Swiss Franc broke the key psychological level of 1.00 against the US Dollar and reached a 2 ½ year high of 0.9776.
Amid fears that the recovery from the worst recession since the Great Depression was at risk, the Federal Reserve took a step toward a new round of monetary easing to stimulate growth if necessary. At its one-day meeting last week, the US Central Bank said it is ready to provide extra accommodation to support the economic recovery and to bring inflation back to levels consistent with the Fed’s mandates. This will most likely be through the purchase of Treasury bonds that could further depress the U.S. debt yields and weaken the demand for U.S. assets in general.
Housing Sector Showing Signs of Stability
The US housing market showed some signs of stability in August, following the steep declines brought by the end of the popular homebuyer tax credit in April. Housing starts rose 10.5% last, the largest increase since November, to an annual rate of 598,000 units and against an expected rise to 550,000 units. Building permits jumped to a four-month high to 569,000 against an expected 560,000. Sales of previously owned US homes climbed from a 13-year low, another evidence that the housing market is stabilizing. Existing home sales increased by 7.6% to an annual rate of 4.13 million units. Finally, purchases of new homes were unchanged in August at 288,000, lower than the expected increase to 292,000, and matching July’s figure as the second lowest outcome since 1963.
U.S. Jobless Claims Drop
New US Claims for jobless benefits rose unexpectedly last week, highlighting continued labor market weakness. Initial jobless claims increased by 12,000 to 465,000, breaking 2 straight weeks of declines. Markets had expected the claims to remain unchanged from the previous week level of 450,000.
Manufacturing & Service Sectors
The pace of growth in the eurozone’s services and manufacturing sectors slowed much more than expected this month, triggering fears about the overall health of the 16-nation area. The Services PMI (Purchasing Manager’s Index), which compiles surveys of around 2,000 businesses ranging from banks to restaurants, fell to 53.6 in September from 55.9 in August, its lowest reading since February. Despite the reading above the 50-mark, which divides growth in business activity from contraction, the number was below market’s expectations of 55.5. On the manufacturing side, the PMI pointed to an economic growth of 0.6% in the third quarter, however down from the 1.0% seen in the second quarter.
The IFO German Business Climate index topped expectations and eased concerns prompted by the PMI numbers, that the Eurozone’s fragile recovery was stalling. The index unexpectedly edged higher to 106.8 in September from 106.7 in August, and against forecasts for a fall to 106.2.
Bank of England Minutes
The Minutes of the monetary policy committee’s September meeting showed the Bank of England voted 8-1 for leaving interest rates on hold at a record low of 0.5%, as widely expected, with only one committee member isolated in calling for higher rates. Additionally, the minutes revealed that policymakers were more willing to consider further monetary easing to support the economy.
Recent UK data have been on the soft side, backing market expectations that rates will be on hold near zero for some time to come. The Bank of England data lending to U.K. businesses fell for the 5th month in July but at its slowest pace in a year. In the housing sector, data revealed that property prices in England and Wales fell for a third consecutive month in September and have lost half the gains they made in the first 6 months of 2010.
The RBA Minutes
The minutes from the Australian central bank’s September meeting reinforced expectations of higher interest rates. Following its several hikes to 4.5%, the RBA said it stood ready to use interest rates to help manage an expected strong pickup in the domestic economy during the coming months.
Gold at Record Highs
Gold has reached a new all-time-high on Friday, as economic uncertainties around the world boosted its safe-haven appeal. The commodity reached $1,299.65 per ounce, just shy of the $1,300 mark.
Dinar at 0.28485
The USDKWD opened at 0.28485 on Sunday morning.
Rates - 24 September 2010
Previous Week Levels This Week’s Expected Range 3-Month
Currencies Open Low High Close Minimum Maximum Forward
EUR 1.3052 1.3025 1.3495 1.3489 1.3410 1.3550 1.3485
GBP 1.5659 1.5501 1.5843 1.5819 1.5710 1.5910 1.5805
JPY 85.73 84.09 85.80 84.18 83.40 85.20 84.10
CHF 1.0100 0.9776 1.0121 0.9827 0.9775 0.9980 0.9815