NBK Weekly Money Markets Report dated 14-02-2010
The debt crisis in Greece, and its ramifications on other highly indebted countries such as Spain and Portugal, and on the Euro Zone as a whole, were the main drivers of the foreign exchange markets last week. The major currencies were quite volatile and traded in relatively wide ranges, with a stronger US Dollar trend still in place. The Euro started the week strongly, with news coming out of the EU announcing to support Greece. It rallied from 1.3678 to a high of 1.3839 on Tuesday, but weakened thereafter on concerns that the support plan announced was not going to be enough to solve Greece’s problems. The Euro ended the week at 1.3632. The Sterling Pound range traded between a high of 1.5765 and a low of 1.5536. However, the currency was able to sustain minor strengthening against the greenback, and closed the week at 1.5701. The Japanese Yen was also weaker, and closed at 89.96. The exception was the Australian Dollar, which was able to strengthen against the US Dollar to 0.89 levels, especially after the better-than-expected job report.
Bernanke Outlines Eventual Exit Plan
Federal Reserve Chairman Ben Bernanke detailed last week how the U.S. central bank will begin to separate the economy from its extraordinary monetary stimulus, even as he stressed it was not yet time to do so. Bernanke said the Fed would likely begin tightening monetary policy by removing some of the cash from the financial system before turning to raise benchmark short-term interest rates. The U.S. central bank has pumped more than $ 1 trillion into the economy after cutting the Fed Fund rate to near-zero levels in an effort to combat the financial crisis. He added that the Fed could soon raise the discount rate it charges banks for emergency loans, but stressed that this would not be related to a tightening in monetary policy.
Jobless Claims Drop Sharply
The number of Americans filing for initial unemployment insurance fell sharply last week, as states cut down a year-end accumulation of claims, bringing claims down to a level that signals companies are firing fewer workers as the economy recovers. There were 440,000 initial jobless claims filed in the week ended February 6, down 43,000 from a revised 483,000 the previous week. The continuous jobless claims, an indicator showing the number of people filing for jobless benefits for at least two consecutive weeks, is still decreasing and currently stands around 4.5 million, a level that represents a 13-month low for the job environment indicator.
EU Pledges to Support Greece, Vaguely
A pledge by the European Union to stand by crisis-hit Greece punctured hopes in the financial markets last week of a swift rescue and raised fears of renewed selling. European leaders sought to support Greece at a summit last week, but failed to offer concrete proposals to help the country tackle its debt crisis.
The leaders of the 27-nation region, unwilling to spread the problems to other highly indebted nations such as Spain and Portugal, promised “determined and coordinated action, if needed, to safeguard stability” of the euro zone, which has been shaken by turmoil in bond markets amid fears that Greece’s debt problems could spread. The agreement amounted to an implicit assurance to help the country if it had problems in refinancing debt in April and May, and stopped short of providing immediate support for Athens.
Moreover, the International Monetary Fund (IMF) joined the European Union on Friday in pledging support to Greece in its struggle to bring its ballooning budget deficit under control and contain its debt crisis. Mr. John Lipsky from the IMF said “We stand willing and able to support Greece in ways that the Greek authorities think is appropriate”.
GDP in the Euro Zone
Official figures showed that the economy in the 16-country Euro region barely grew in the last three months of 2009, a further sign that the single currency bloc’s recovery from recession is being constrained by the performance of some of its weakest members. GDP grew only by 0.1% in the fourth quarter of 2009 from the previous quarter.
German Gross Domestic Product (GDP) showed no growth in the final quarter of last year as shown by official data on Friday, leaving Europe’s largest economy on a weak footing going into 2010. GDP was unchanged quarter-on-quarter, and followed a growth of 0.7% in the previous quarter. The stall reflected weak investment and consumption offsetting a rise in German exports. Economists expect private consumption to lend little, if any, support to the recovery this year, with an expected rise in unemployment sapping households’ willingness to spend.
Bank of England Quarterly Inflation Report
In a cautious quarterly inflation report, the governor of the Bank of England (BoE), Mr. Mervyn King , said that the British economy is continuing to “bump along the bottom”, and was keen to stress that the option of resuming quantitative easing remains open although the GBP 200 billion program is now complete. “It is far too soon to conclude that no more purchases will be needed. So the committee will keep its options open, and further purchases will be made if they prove necessary”, said Mr. King. The Pound fell and government bonds rallied as investors bet it would be a long time before the BoE starts raising interest rates from their current record low of 0.50%; worse, the BoE could even boost its asset-purchase scheme.
Australian Unemployment Falling
Australian employers added the most workers in more than three years in January, sending the currency surging on speculation that the Reserve Bank of Australia (RBA) will resume its round of interest rate increases. The number of people employed rose 52,000 from December, more than triple the estimated 15,000. The jobless rate fell from 5.5% to an 11-month low of 5.3%, as shown by the statistics bureau in Sydney. The biggest hiring boom in five years is increasing pressure on the RBA’s governor Glenn Stevens to resume raising borrowing costs in order to prevent a surge in wages, thus feeding inflation. The better-than-expected result was driven by rising numbers of part-time and, to a lesser extent, full-time workers. Jobs are being created in mining, energy and construction, analysts said, fuelled by demand from China and others. The continuous fall in the unemployment rate backs comments made by the Australian prime minister that the rate had previously peaked in August 2009 at 5.9%.
Dinar at 0.28820
The USDKWD opened at 0.28820 on Sunday morning.