After opening the week at 1.3561, the Euro dropped on Monday following Germany’s Factory Order number missing expectations. After Bernanke’s speech, the Euro recouped its losses and rose to a high of 1.3744. The currency could not sustain its gains, and witnessed a selling spree following the situation in Egypt. The Euro ended the week at 1.3555.
The Sterling Pound opened the week at 1.6096, and traded in a narrow range up to the BOE meeting. On Friday, the Pound was sold and touched a low of 1.5964 before closing sessions at 1.6005.
The Swiss Franc was the main underperformer, mostly affected by the EURCHF gaining momentum as investors moved back assets into European banks.
The Japanese Yen was no exception as it started the week at 82.20, and was able to break the 82.00 level on Tuesday. However, as geopolitical turmoil escalated and US yields went soaring, the Yen weakened and reached a level of 83.68, before closing at 83.45.
Federal Reserve’s Warning
In his speech last week, the Federal Reserve Chairman Ben Bernanke sounded pessimistic with respect to the US unemployment sector and budget deficits. He warned that sharp cuts in US spending at times where economic recovery is fragile could compromise its growth, and risk a rebounding unemployment rate. At Bernanke’s first house testimony since Republicans took control of the lower chamber last month, he defended the bond-purchasing program, insisting that Congress should adopt a long-term plan to control a federal budget that is projected to reach a record of $1.5 trillion this year. Bernanke added that the second quantitative easing program (QE2) is providing significant support to job creation and economic growth. The Fed president also pointed to the recent figures showing a reduction in the unemployment rate from 9.5 percent to 9 percent as a sign of improvement for the economy but also did acknowledge that the number of persons hired is still low as the economy has only made up roughly 12.5% of the jobs that were lost throughout the recession.
Initial Jobless Claims
The number of Americans filing first-time claims for unemployment insurance fell to the lowest since July 2008, showing further strength in the US labor market. Applications for jobless benefits decreased to 383,000, lower than the previous 419,000 by 36,000. A slowdown in firings means US companies may begin creating enough jobs to keep unemployment going down after the rate’s biggest two-month decline since 1958.
Trade Balance
With higher oil prices contributing to a jump in the value of imports, the US trade deficit widened in December. The report showed that the gap grew 5.9 percent to $40.6bn, in line with market expectations. This is the first increase and the largest gap since September. For all of 2010, the trade gap surged 43 percent, the biggest jump in a decade, as the recovery in spending led to record imports of consumer goods.
Europe: Trichet’s ECB
In a press conference last week, the president of the European Central Bank, Jean-Claude Trichet, stated that the benchmark rate at a record low of 1 percent remains “appropriate”. He also added that despite the short-term “upward pressure” on the Consumer Price Index, this rate keeps inflation risks balanced.
Germany’s Factory Orders
After a strong surge of 5.2 percent in November, German factory orders fell by 3.4 percent in December as reported by official figures. This drop was steeper than the 1.5 percent drop expected, and was largely due to a sharp fall in external demand. The figure weighed on the Euro which slipped to a three-week low against the US Dollar.
UK: Manufacturing Production
The United Kingdom’s Manufacturing Production unexpectedly declined in December as economic activity was hampered by the coldest weather witnessed since the beginning of the century. Manufacturing production dipped 0.1 percent on the month, its first monthly drop since April. The decline was driven by a decline in the output of building materials, and added to concerns over the fragile position of the United Kingdom’s economy.
BoE Interest Rate Unchanged
The Monetary Policy Committee (MPC), led by Governor Mervyn King, left the benchmark interest rate at a record low of 0.50 percent during their meeting last week, despite mounting concern that inflation could soon shoot above 5 percent. The Central Bank said the vote was unanimous among its nine members, and while the decision was somewhat expected, it disappointed some investors who had bet on a small possibility of a rate rise. The MPC also stated that it had made no change to its asset purchase program. The Sterling Pound slipped against a broadly stronger US Dollar following the announcement after long Sterling positions were unwound in the absence of clarity on the central bank’s rate stance. For the latest updates PRESS CTR + D or visit Stock Market news Today
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