The dollar traded in a mixed manner against its major counterparts throughout the previous week. News from Europe was mostly disappointing, reminding investors of the difficult situation in the eurozone. However, US data was positive for the most part of the week, lifting the dollar index despite disappointing data at the end of the week. The dollar index rose to a six-week high as the euro weakened across the board after weak data on economic growth and inflation fuelled expectations for further easing by the European Central Bank. The dollar index was up to 80.33 level.
The euro started the week at 1.3750, gaining only slightly, only to drop significantly as euro area recovery failed to gather momentum last quarter. The European Central Bank Vice-President Vitor Constancio said that its recent strength has had an impact on growth efforts. Moreover, ECB President Mario Draghi said last week that policy makers would be “comfortable” with further stimulus next month if the data allows it. Euro gapped lower on these comments and continued to push lower throughout the week to reach a low of 1.3647 and it ended the week at 1.3692
The Sterling pound fell to a one-month low against the dollar after the Bank of England signalled it is willing to wait until next year to increase interest rates even as the UK economy strengthens. UK policy makers in their quarterly inflation report said while the level of spare capacity in the economy had “narrowed slightly” in the past three months, there “remains scope to make greater inroads into slack before raising the bank rate.” The BoE benchmark has been at a record-low 0.5 percent since March 2009. The pound started the week at 1.6837, it reached a low of 1.6729 and ended the week at 1.6813.
The Japanese yen opened the week at 101.75, acting as a safe haven. Yen gained slightly on Ukrainian tensions, the political crisis in Ukraine, coupled with the resulting tensions between Russia and the West, is yet another reason for speculators to seek safer assets. Moreover, Yen gained against a weaker US dollar as Federal Reserve Chair Janet Yellen said the US has “further to go to achieve a healthy economy.” The Japanese Yen ended the week at 101.49.
Spending at US retailers held unchanging in April after a surge in the prior month that put economic growth on track to pick up in the second quarter. Purchases increased 0.1% to $434.6 billion following a revised 1.5% jump in March that marked the biggest gain in four years, Commerce Department figures showed in Washington.
Wholesale prices in the US climbed in April by the most in more than a year, reflecting broad-based gains that signal the threat of deflation is receding as the economy improves. The 0.6 percent increase in the producer price index followed was the biggest since September 2012 and exceeded all estimates. That indicates a recover in pricing power could be taking shape as the world economy improves.
The German ZEW Economic Sentiment has decreased more than forecasts for a fifth consecutive month in May, by 10.1 points and now stands at a level of 33.1 points from 43.2 in April. The index has dropped every month since reaching a seven-year high of 62 in December. The weakened of the ZEW economic indicator for Germany should be seen against the environment of a strong economic development in the first quarter of 2014.
Eurozone Gross Domestic Product (GDP) increased 0.2 percent in the three months through March, half as much as market expectations and matching growth in the fourth quarter. That may increase pressure on the European Central Bank (ECB) to provide stimulus measures next month in its battle against weak inflation. T
he French economy showed no growth, while analysts expected an increase by 0.4 percent, and the Italian economy contracted by 0.1 percent instead of rising 0.2 percent as was forecast by market. At the same time, the German economy grew 0.8 percent, exceeding expectations of 0.7 percent growth.
BoE Governor Mark Carney confirmed that interest rates would increase when the UK economy returned to normal and that the rise would be “gradual and limited.” Carney also warned that the recent strengthening of the sterling could challenge the balance of the UK economic expansion.
He stressed that the expansion could not continue basing only on consumption but had to be boost by an improvement in net exports. Carney also commented on the housing market, stressing that monetary policy is not the “right tool” for dealing with a possible housing bubble.
The Bank of England stated that rates would stay low for at least one more year. Once they start rising, the process will be slow and gradual. The GDP growth forecast for 2014 remained steady at 3.4 percent, while the expectation for 2015 climbed to 2.9 percent from 2.7percent. The BoE also kept its inflation outlook, stating that in two years’ time Consumer Price Index (CPI) should remain just below the two percent target, if interest rates start rising in the second quarter of 2015. As far as unemployment is concerned, the BoE sees it around 5.25-5.75% in three years’ time.
Britain’s unemployment rate dropped to a five-year low in the first quarter, increasing the argument over when the Bank of England should begin raising interest rates. The unemployment measured by the Claimant Count Change fell by 25.1K in April, missing expectations for 30.0K and up from March’s 30.6K (revised).
The Australian business confidence increased in April amid signs of an improving outlook for the domestic economy. Business confidence from National Australia Bank was positive showing a small increase of the index from March 4 to April 6, as the labor market continues to show signs of improvement.
The Peninsula
