NBK Weekly Money Markets Report

NBK Weekly Money Markets Report
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Published August 30th, 2010 - 14:36 GMT

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United States
Lower US Dollar
The US Dollar lost its footing against some of the major currencies last week due to an increased negative sentiment in the US economy. The Euro started the week at a low of 1.2588 reaching a high of 1.2779 towards the end of the week, closing at 1.2728. The Sterling Pound fell against the US Dollar at the beginning of the week amid comments from a Bank of England member suggesting that the UK economy might go into recession. The Sterling reached a low of 1.5373 and a high of 1.5619.  The Japanese Yen reached a 15-year high against the US Dollar at 83.57, which triggered some signals from the Bank of Japan that there might be an intervention to push the Yen lower. The Swiss Franc also gained against the greenback amid increased risk aversion in the market, reaching a high of 1.0221 and a low of 1.0451.      
Jobless Claims Improving
Applications for unemployment benefits in the US fell more than expected last week, easing concern that the labor market was rapidly deteriorating as the economy slows. Initial jobless claims fell by 31,000, the first decline in 4 months, to 473,000 against a forecast of a drop to 488,000 from the previous 504,000. 
Deteriorating Housing Market
Sales of existing homes dropped by a record 27% in July as the effects of a government tax credit diminish, showing a lack of jobs threatens to curb the US economic recovery. Existing Home Sales plunged to 3.83 million annually, the lowest in 10 years, and worse than market expectations of a drop to 4.68 million from a previous 5.26 million. Similarly, New Home Sales fell to the lowest level on record, signaling that the housing market’s recovery was supported mainly by the government tax credit. New Home Sales dropped to 276,000 against an expected increase to 333,000. 
Durable Goods Orders Drop
The US economy received another sign that the expansion has slowed.  Durable goods orders rose by 0.3%, less than the anticipated 2.9%.  Meanwhile, the Core Durable Goods Orders, excluding transportation, dropped by 3.8%, a figure much lower than the expected increase of 0.6% and the previous 0.2%.
Fed Chairman Bernanke Speaks
Federal Reserve Chairman Ben Bernanke, in his speech last week, showed his concerns about the possibility that the country could witness a double dip recession, stating that the economic outlook seems “inherently uncertain” and that the economy “remains vulnerable to unexpected developments”. He added that the Fed is ready to do what it takes to support an economic recovery that has been losing steam. Bernanke said he expects the US economy to continue growing in 2011 and subsequent years, signaling further action from the central bank may not be needed. Still, he stressed that the Fed is ready to act if needed to boost the economy and to avoid deflation, for which he sees no significant risks for now. His remarks came shortly after official data showed that the economy slowed sharply in the second quarter, with the annualized GDP falling from 2.4% to 1.6%. Bernanke stopped short from committing to any specific plan, but he raised the prospect of another purchase of securities, most likely government debt or mortgage securities, to drive down rates and spur more spending by Americans.
Consumer Confidence Rising
European Consumer Confidence unexpectedly improved in August after economic growth accelerated to the fastest pace in four years in the second quarter. European households may remain reluctant to boost spending as governments cut budget deficits and companies continue to eliminate jobs. Consumer Confidence in the Euro zone rose to a 27-month high to reach -11.7 in August from a revised -14.0 in July.  In Germany, the business sentiment unexpectedly rose in August, as the IFO Business Climate index rose to its strongest reading since July 2007. The index reached 106.7 in August from 106.2 in July, higher than the expected drop to 105.8.    
German GDP Unchanged
The GDP report showed that the German economy expanded at a record high of 2.2% in the second quarter, fueled by an increase in exports and investments. A breakdown of the data showed that exports rose 8.2% from the first quarter; however this record high growth, heavily dependent on exports, may be hard to maintain as slowdowns in China and the US are likely to weigh on demand for foreign products.
Industrial New Orders
Industrial new orders in the Euro zone rose more than expected during the month of June, a positive sign for economic growth in the third quarter of 2010. Industrial orders in the 16-nation currency zone increased 2.5% monthly against expectations of a modest 1.6% rise.
United Kingdom
GDP Revised Higher
The UK economy expanded faster than previously estimated in the second quarter as companies rebuilt stocks and construction work surged. Gross Domestic Product rose 1.2% in the second quarter higher than the 1.1% initial estimate. The pickup in the United Kingdom’s growth may deepen the division among policy makers as the Bank of England considers whether inflation is the main threat to the economy, or more stimulus is needed to avoid another recession.
Trade Balance
The Japanese Trade Surplus rose in July as a rise in exports overcame market expectations for a drop. Exports rose by 23.5% year-on-year, faster than the estimated drop to 21.8%. The results translated into an unexpected increase in the Japanese trade balance to reach ¥610.4 billion from a previous ¥514.5 billion and better-than-expected drop to ¥397.5 billion.
The Unemployment Rate
The Japanese unemployment rate fell as the number of unemployed people marked the first monthly drop in five months and more jobs were created for the second straight month. The unemployment rate fell to 5.2% from the previous 5.3%.
Deflation Persists
Deflation in Japan persisted as consumer prices fell for the 17th straight month. The Japanese Core Consumer Price Index, which excludes fresh food prices, dropped by 1.1%  in July compared to last year, matching market expectations.
Dinar at 0.28795
The USDKWD opened at 0.28795 on Sunday morning.

Rates – 27 August 2010

 Previous Week Levels Next Week Range  3-Month
Currencies Open Low High Close Minimum Maximum Forward
EUR 1.2701 1.2588 1.2779 1.2728 1.2500 1.2900 1.2750
GBP 1.5514 1.5373 1.5619 1.5520 1.5400 1.5700 1.5550
JPY 85.55 83.57 85.49 85.13 84.00 87.50 85.50
CHF 1.0345 1.0217 1.0451 1.0276 1.0200 1.0400 1.0286


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