Weekly Money Markets Report dated 25-04-2010
Greenback Still Strong
The strengthening of the US Dollar against other major currencies continued last week as risk aversion mounted in the foreign exchange markets. Traders were mainly focusing on news from the Euro Zone and the United Kingdom, as the Greek debt crisis evolves and the election in the United Kingdom approaches. The Euro was not able to break higher, with the downtrend being the major theme. It started the week trading in a narrow range until news about the budget deficit in the Euro Zone came out, along with a sovereign rating downgrade for Greece. This news pushed the Euro lower to a level of 1.3202, the lowest since May 2009. The Euro was able to recuperate on Friday after the Greek government announced that it would ask for help from the proposed bailout plan, and closed at 1.3384. The Sterling Pound had a flattish week, reaching a high of 1.5473 on Thursday, and ending the week at 1.5377. The Swiss Franc had a similar performance to the Euro’s, weakening until Thursday to a level of 1.0850, and recouping some of the losses on Friday to close at 1.0731. The Japanese Yen was no exception. The currency reached a low of 91.60 on Monday, but weakened afterwards to a high of 94.32, and ended sessions at 93.97.
Quarterly Earnings Showing Positive Numbers
Companies around the world are posting their earnings results for the first quarter of 2010, and in many cases the numbers are showing an improvement from earlier figures. Citigroup posted a $4.43 billion first-quarter profit, its best result in nearly three years, as the economic recovery reduced the bank’s credit losses and increased prices even on its worst assets. Similarly, Credit Suisse Group reported a net profit of CHF 2.06 billion ($1.93 billion), and said it was well placed to meet new banking rules due to come into force in Switzerland later this year.
Sales of US previously owned homes rose in March for the first time in 4 months as buyers took advantage of a government tax credit and the weather improvement. Purchases climbed 6.8% to an annual rate of 5.35 million.
The Labor Department reported a rise of 0.7% in producer prices in March, pushed up by the biggest gain in food costs since 1984. Excluding food and energy costs, wholesale prices rose 0.1%.
Eurozone Budget Deficit Widens
The Euro area’s budget deficit widened to more than double the union’s 3.0% limit in 2009, led by Greece and Ireland. The total budget deficit, expressed as a percentage of the Gross Domestic Product (GDP), reached 6.3% last year which represents the highest level since the introduction of the Euro in 1999, after recording only 2.0% in 2008. At 14.3% of GDP, Ireland had the largest shortfall among its peers. Financially-stricken Greece had an even bigger deficit than previously thought. The data showed that Greece’s budget deficit in 2009 was 13.6% of GDP.
Greece Rating Downgrade
The credit rating agency Moody’s lowered Greece’s sovereign rating one notch from A2 to A3 and placed them on review for further possible downgrade. The move is based on the agency’s view that there is a “significant risk that debt may only stabilize at a higher and more costly level than previously estimated”. The review, which is expected to conclude within the next three months, will determine whether the rating will remain in the A range. The country’s sovereign rating now stands four notches above the “junk” status.
Positive Economic Indicators
Europe’s services and manufacturing industries expanded more than economists forecast in April as an export-led recovery prompted companies to step up production. The Purchasing Managers Index (PMI) for the manufacturing and the services sectors rose to 57.5 and 55.5 respectively, from earlier levels of 56.6 and 54.1. A composite index for both industries rose from 55.9 to 57.3.
In Germany, Europe’s largest economy, investor confidence rose in April as falling unemployment and a weaker Euro improved the economic sentiment. The ZEW index for investor and analyst expectations rose from 44.5 to 53.0 in March, recording the first increase in 7 months.
MPC Meeting Minutes
The minutes from the Bank of England’s last meeting showed that the policy makers voted unanimously to keep their bond-purchase plan at GBP 200 billion in April as some officials showed mounting concern at the prospect of a prolonged period of faster inflation. Bank of England officials are trying to balance between promoting the economic recovery and containing the effects of rising inflation, which was above BOE’s upper limit of 3.0%. Officials have suspended commenting on policy before the May 6 election, in order not to influence the voters’ opinions before the polls.
Gross Domestic Product
The UK’s economy grew half as much as economists had forecasted in the first quarter of 2010, underscoring the recovery’s fragility two weeks before the elections. GDP rose 0.2% from Q4 2009, when a 0.4% expansion ended the recession.
Mixed Economic Data
The United Kingdom’s Consumer Price Index (CPI) climbed 3.6% from a year earlier compared with a 3.0% increase in February as energy costs rose within weeks of the election, and as a weak Sterling Pound helped push the cost of imports. The Bank of England has a mandate to target inflation at 2.0% and keep it within 1 percentage point of that level. Excluding the volatile components that are the energy and food costs, the so-called Core CPI rose by 3.0% from last year.
The jobless claims fell more than expected in March, falling by 32,900 from February to 1.54 million. However, the unemployment rate climbed from an earlier 7.8% to a 16-year high of 8.0%.
Dinar at 0.28825
The USDKWD opened at 0.28825 on Sunday morning.