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WEEKLY SUMMARY
Another good week for U.S. dollar as the U.S. currency climbed to its strongest level in six months against Euro and a seven month high against the Yen. The greenback has already advanced by about six percent in this month buoyed by drop in oil prices and growing views that the U.S. economic slowdown may be bottoming while growth in Euro zone is slowing. Data in the U.S. on Friday showed an unexpected rise in manufacturing activity and also an increase in the industrial output and consumer confidence numbers. However, the data from Euro zone and Japan stoked fears of shrinking economies and economic slowdown. On Thursday, the reports showed the Euro zone economy contracted in the second quarter for the first time since the inception of the common currency. In Japan too, the economic data revealed a larger than anticipated contraction in the economic growth as Q2 GDP fell by 2.4% compared with the 4.0% growth a year earlier and down 0.6% versus the 1.0% growth in previous quarter. This report reinforced the negative sentiments expressed by government officials last week, raising fears that a recession may be looming for Japan. With weak economic data and global equity sell-off, Yen traded to a seven month low against the dollar at 110.66. Against Euro too, Yen traded to a low of 161.20 - the lowest level since May 13th 2008.
This dollar rally knocked an already struggling sterling to two-year lows near 1.85 levels. Sterling has fallen by 3 percent in this week and declined in each of past 11 days stretch, the longest stretch since January 1971. The Pound fell sharply on
Wednesday following the release of the Bank of England's inflation report. The Bank's inflation report highlighted the growing risks for a possible recession, stating that risks to GDP are on downside with slowdown sharper than seen in May. While it added that inflation risks remain to the upside, it expects the CPI to be below the 2% target in two years if interest rates hold steady at 5%. UK futures are pricing in a 60% probability for a December BOE rate cut versus a 10% chance prior to the release. Apart from the inflation report, the employment report also painted a gloomy picture of the UK economy. The unemployment claimant count shot up to its highest level in 15 years at 20.1 K in July versus an upwardly revised 20K reading from June.
A steep drop in commodity prices also has lent support to the dollar as it has helped in easing concern about the U.S. economic outlook in the second half of the year. Crude oil prices ended on Friday at $113.77 / barrel, 20 percent lower than the all-time high high at $147 set on 11 July. Gold also fell below $800 an ounce, capping the biggest weekly slide in 25 years, as the dollar surged against the Euro, reducing the appeal of the metal as an alternative investment. U.S. stocks rose for the third straight week after falling oil prices and better earning reports from JC penny that lifted retailers' shares. Britain's benchmark index, FTSE 100 fell 0.6 percent this week and is on track for a modest 0.8 percent rise in August, which could be the first monthly gain in four months. The benchmark Nikkei average closed 1.1 pct lower for the week. Though a softer yen has helped the exporters and lifted the markets but the worries about the global economic health has weighed on the market.
For this week, all eyes will be on Producer Price Index, housing starts and manufacturing data that will be released this week. On Monday, the National Association of home builders will release its August Housing market Index whereas on Tuesday, the government will release July housing starts.
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Exchange Rates
(Week Ending, 2 August,08) |
Stock Markets |
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Closing |
Range |
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Closing |
% Change Over Week |
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EUR |
1.4682 |
1.4657 – 1.5083 |
DOW JONES |
11,659.90 |
0.84% |
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JPY |
110.51 |
110.66 – 108.35 |
HANGSENG |
20,930.67 |
-4.20% |
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GBP |
1.8639 |
1.8510 – 1.9256 |
NIKKEI |
13,091.41 |
0.68% |
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U.S. 10 Year T-Bond Yield |
3.82% |
| U.S. 10 YEAR IRS LEVEL |
4.09% | |
