The US dollar maintained its strength against its major counterparts as demand for the currency remained intact despite disappointing data. Additionally, the demand for the greenback remained supported after the Federal Reserve statement reiterated that it expects rates to remain on hold for a “considerable time”, after its bond purchasing programme ends.
The euro opened the week at 1.2962 and surged to a high of 1.2994. The single currency quickly lost its momentum, as the first TLTRO results were below estimates, signalling that the ECB will be under more pressure to stimulate the economy, which drove investors to sell the euro. The currency reached a low of 1.2828 and closed the week at 1.2830.
The Sterling Pound strengthened as Scotland overwhelmingly rejected independence after a record turnout of voters delivered a clear victory for the No campaign. Now that the risk is behind, BoE is expected to be back on track, and “business as usual” as some described. The central bank is expected to hike rates next year as the recovery gathers momentum. GBP/USD reached as high as 1.6523 on Friday comparing to this month’s low of 1.6051. However, cable quickly dropped as investors quickly took their profit and pushed the currency to close at 1.6288.
While investors focused on the Pound, the Japanese Yen was also a notable mover on Friday, weakening against all other major currencies. The FOMC confirmation of the start of rate increases around the middle of 2015 has helped USD/JPY as divergence between the BoJ and the Fed policies grew wider. USD/JPY opened at 107.30 and reached a low of 106.79. The Dollar gained as demand from investors was ignited following the Fed’s statement, pushing the pair to a 6-year high of 109.45. The Japanese currency recouped slightly to close the week at 109.04.
The Federal Reserve stuck to its pledge to keep interest rates near zero for a “considerable time” after it stops buying assets, even as it outlined a strategy to exit from six years of unprecedented easing. “The labour market has yet to fully recover,” Fed Chair Janet Yellen said at a press conference after a meeting of the Federal Open Market Committee in Washington. “There are still too many people who want jobs but can’t find them.”
Moreover, Fed policy makers increased their median estimate for the key rate to 1.375 percent at the end of 2015 against June’s forecast for 1.125 percent. Fed Chair Yellen stated that the Fed funds rate is expected to move close to normal levels by 2017. However, rates could rise sooner and more rapidly as the Fed’s decisions are mainly data dependent.
The cost of living in the US unexpectedly dropped in August for the first time in more than a year, showing inflation still is falling short of the Federal Reserve’s goal as policy makers meet. The consumer-price index declined 0.2 percent, the first decrease since April 2013.
Housing starts slumped in August after reaching the highest level in almost seven years, pointing to an uneven pickup in the US residential real-estate market that will limit its contribution to economic growth. Beginning home construction fell 14.4 percent, the most since April 2013, to a 956,000 annualised rate following July’s revised 1.12 million pace that was the strongest since November 2007.
The number of Americans filing applications for unemployment benefits plunged last week to a two-month low, a sign the labour market continues to strengthen. Jobless claims decreased by 36,000 to 280,000 in the period ended September 13, the Labor Department stated last week. Economists called for a decrease to 305,000. Those already collecting unemployment benefits fell to a more than seven-year low. Companies are retaining workers as stronger household and corporate demand fuels order growth.
German investor confidence dropped for a ninth month amid increasing political tension in Europe, even as the European Central Bank steps up its stimulus. The ZEW Centre for European Economic Research in Mannheim said its index of investor and analyst expectations, which aims to predict economic developments six months in advance, fell to 6.9 in September from 8.6 in August. The gauge has decreased every month since December when it reached a seven-year high. Economists forecast a drop to 5, according to the median of 33 estimates in a Bloomberg News survey.
Mario Draghi is facing renewed pressure to implement quantitative easing after banks borrowed less than estimated in the European Central Bank’s first targeted-loan offer. The Frankfurt-based ECB lent ¤82.6bn ($106.5bn) to euro-area banks at a fixed interest rate of 0.15 percent in its targeted longer-term refinancing operations. That was below market estimates, which gave a range of ¤100bn to ¤300bn. Spanish and Portuguese bonds rose, indicating that investors are betting the ECB president may ultimately resort to large-scale purchases of government debt as he strives to avert deflation in the euro area. Draghi has signaled he wants to boost the institution’s balance sheet to as much as 3 trillion euros from 2 trillion euros. The ECB’s four-year loans are intended to spur lending to the real economy, with the offers of cheap cash tied to the size of banks’ loan books. Eight TLTROs will be held through 2016. The next one is scheduled for December.
Bank of England Minutes from the MPC monetary policy meeting held on September 3 and 4 and released yesterday reveal that the Committee voted 2-7 in favour of holding the interest rate at the record low of 0.5 percent and unanimously decided for keeping the program of asset purchases steady at £375bn. This outcome is in line with market expectations. Ian McCafferty and Martin Weale were the MPC members who preferred to increase the interest rate by 25 basis points to 0.75 percent, arguing that robust UK economic growth justified a hike, and they said that a sharp pickup in wage growth would be seen along with the absorption of slack.
The Peninsula
