Dollar drops as global growth concerns fuel risk aversion United States

The US Dollar dropped against most of its major counterparts as minutes of the Federal Reserve Open Market Committee showed that subdued inflation outlook and weakness in the global economy could still pose risks to the US economic outlook. The minutes combined with disappointing unemployment claims and low inflation figures dampened expectations of a September rate hike pushing the greenback lower. Additionally, worries of a deepening China economic slowdown intensified after a private survey showed that the factory sector shrank at its fastest rate in almost 6-1/2-years in August, pushing global stocks and commodity prices dramatically lower. The gloomy figure sent investors fleeing for cover in gold and bonds, fearing China's sagging economy would translate into slower global growth and dampen the outlook for the timing of the first US interest rate hike. The US Dollar index, which measures the performance of the greenback against a basket of major currencies opened the week at 96.52 and closed the week at the low of 94.80.

The Euro strengthened against the greenback last week as the recent FOMC minutes offered no clear indications of a looming rate hike. The single currency found additional support amid better than expected Manufacturing figures from Germany. The pair opened the week at 1.1109 and reached a high of 1.1389 on Friday. Finally, the Euro closed the week at 1.1386.  

Last week Sterling traded in a volatile manner against the US Dollar. The currency initially gained amid better than expected inflation figures. However, retail Sales disappointed the market and pushed investors to sell the currency pushing it to a low of 1.5563. Cable regained some of its losses amid the FOMC minutes and reached a high of 1.5723 only to lose some of that momentum and close the week at 1.5694.

The Japanese Yen gained against the US Dollar last week as the FED minutes gave no indication of a hike in September and as Chinese figures continue to raise concerns over global growth fuelling risk aversion. The USDJPY opened the week at 124.31 and dropped dramatically to 122.47 at the end of the week. The JPY closed the week at 122.04 after reaching a high of 121.82.

On the commodities side, US oil prices recorded their eighth consecutive week of falls last Friday, the longest losing streak since 1986, after US crude inventories rose and as a sharp drop in Chinese manufacturing increased worries over the health of the world's biggest energy consumer. Oil prices traded around $40.21 in the US and $46.02 globally.

Strong Housing Data

Purchases of previously owned US homes unexpectedly rose in July to the highest level since February 2007, consistent with further strength in the housing market. Existing home sales increased by 2% to a 5.59 million annualized rate from the prior month’s revised 5.48 million pace versus expectations for a drop to 5.43 million.

Similarly, Housing starts rose by 0.2% to a 1.21 million annualized rate, the most since October 2007, from a 1.2 million pace in the prior month that was higher than previously estimated. Meanwhile, economists expected a drop to 1.18 million. Rising employment and historically low mortgage rates are enticing buyers, while increasing prices induced by a lack of homes on the market is an incentive to start new developments. The data is consistent with the Federal Reserve’s view that housing is improving.

Inflation

The cost of living in the US rose in July at the slowest pace in three months, casting doubt on how quickly inflation will return toward the Federal Reserve’s goal. The consumer price index climbed 0.1% after a 0.3% gain the month before. While, economists projected a 0.2% increase. Excluding food and fuel, costs also rose less than projected.

Oil has plunged more than 30% from this year’s closing peak in June amid a global supply glut that might hold down inflation in the coming months. When combined with a stronger dollar and slower growth overseas, the energy slump will make the Fed’s price goal even more out of reach.

FOMC Minutes Failed To Give Clear Rate Hike Signals

The FOMC minutes showed that Fed officials believe that the economy is nearing the point where interest rates should move higher, but noted that the subdued inflation outlook and weakness in the global economy could still pose risks to the US economic outlook.

The minutes showed that most members “judged that the conditions for policy firming had not yet been achieved, but they noted that conditions were approaching that point." That sentiment, combined with a broader recognition among "many members" that full employment was close, led the Fed to say in its post-meeting statement that it only needed to see "some" more improvement in labor markets before hiking rates. That sentiment, combined with a broader recognition among "many members" that full employment was close, led the Fed to say in its post-meeting statement that it only needed to see "some" more improvement in labor markets before hiking rates. But that feeling was offset by apparently widespread concern about weak inflation, tepid wages, and a slowdown in global growth.

"Almost all members would need to see more evidence that economic growth was sufficiently strong and labor market conditions had firmed enough for them to feel reasonably confident that inflation would return to the committee's longer-run objective over the medium term," the minutes said. The US Dollar dropped as the minutes dampened expectations for a rate hike in September.

Jobless Claims Unexpectedly Rise

The number of people who filed for unemployment assistance in the US rose to a five-week high last week, but remained close to levels indicating that the labor market is strengthening.

In a report, the US Department of Labor said that the number of individuals filing for initial jobless benefits in the week ending August 15 rose by 4,000 to a seasonally adjusted 277,000 from the previous week’s total of 273,000. Analysts had expected initial jobless claims to fall by 1,000 to 272,000 last week.

First-time jobless claims have held below the 300,000-level for 24 consecutive weeks, which is usually associated with a firming labor market.

The four-week moving average was 271,500, an increase of 5,500 from the previous week’s total of 266,000. The monthly average is seen as a more accurate gauge of labor trends because it reduces volatility in the week-to-week data.

US Manufacturing Improves

Manufacturing activity in the Philadelphia-region expanded at a faster pace than expected in August, boosting optimism over the US economic outlook. In a report released last week, the Federal Reserve Bank of Philadelphia said that its manufacturing index improved to a reading of 8.3 this month from July's reading of 5.7. Analysts had expected the index to rise to 7.0 in August. On the index, a reading above 0.0 indicates improving conditions, below indicates worsening conditions.

Europe & UK

Germany Leading the Recovery with Manufacturing Exceeding Expectations

Stronger-than-expected growth among manufacturers helped Germany's private sector expand at a faster rate in August, suggesting Europe's largest economy is on track for a solid third quarter.

The German manufacturing index rose to 53.2 from 51.8 in August, marking the highest level in 16 months and higher than the expected 51.7. Despite concerns over a cooling global economy, new export orders for goods producers rose to their highest level in 1-1/2 years.

Meanwhile, French manufacturing shrank for a second month. French PMI dropped to 48.6 in July from 49.6 previously. The figure missed expectations of a slight rise to 49.8. A reading below 50 depicts contraction.

Greek Prime Minister Tsipras Calls for Elections  

Prime Minister Alexis Tsipras resigned last week, hoping to strengthen his hold on power in snap elections after seven months in office in which he fought Greece's creditors for a better bailout deal but had to cave in. Tsipras is seeking early elections in a move to quell a rebellion in his leftist Syriza party and seal public support to implement the recently imposed bailout program, Greece's third since 2010, which he negotiated. Government officials said the aim was to hold the election on Sept. 20.

UK Inflation Rises

The UK’s inflation rate unexpectedly rose in July and a core measure of price growth jumped to the highest in five months. The increase in the headline reading to 0.1% from zero was due to clothing prices. The core measure, which excludes volatile food and energy costs, increased to 1.2% from 0.8%, higher than the 0.9% reading predicted by economists. While the figures published Tuesday were stronger than anticipated, inflation is still well below the Bank of England’s 2 percent target. Policy makers have said it will remain low in the short term because of the strength of the pound and a renewed decline in oil prices. Over the longer term, Governor Mark Carney says price growth will accelerate and the time to begin raising rates is approaching.    

Retail Sales Lower than Expected 

Retail sales in the UK rose less than expected in July, dampening optimism over the country’s economic outlook and dimming prospects for higher interest rates. In a report, the UK Office for National Statistics said retail sales increased by a seasonally adjusted 0.1% last month, disappointing forecasts for a gain of 0.4%.Retail sales in June fell by 0.1%, whose figure was revised from a previously reported decline of 0.2%.

Year-on-year, retail sales increased at an annualized rate of 4.2% in July, below expectations for a 4.4% gain, after rising at a rate of 4.2% in June. Core retail sales, which exclude automobile sales, inched up by a seasonally adjusted 0.4% last month, in line with forecasts and following a drop of 0.3% in June.

Asia

Japanese Economy Contracts Less than Expected

Japan’s economy contracted last quarter as consumers and businesses cut spending, putting pressure on the prime minister to return his focus to Abenomics. Gross domestic product for the quarter fell 1.6% on-year, compared with expectations for a 1.9% contraction. Compared with the previous quarter, GDP contracted 0.4%, slightly better than expectations for a 0.5% contraction.

China Manufacturing Contracts Further

Worries of a deepening China economic slowdown intensified after a private survey showed the factory sector shrank at its fastest rate in almost 6-1/2-years in August, hammering global stocks and commodity prices. The gloomy figure sent investors fleeing for cover in gold and bonds, fearing China's sagging economy would translate into slower global growth and dampen the outlook for the timing of the first US interest rate hike in nearly a decade. The preliminary Caixin/Markit China Manufacturing Purchasing Managers' Index stood at 47.1 in August, well below the expected figure of 47.7 and down from July's final 47.8.

It was the worst reading since March 2009, in the depths of the global financial crisis, and the sixth straight one below the 50-point level, which separates growth in activity from contraction on a monthly basis. 

Kuwait

Kuwaiti Dinar at 0.30160

The USDKWD opened at 0.303160 on Sunday morning.

Rates – 23 August 2015