Fundamental Market Overview *source Dukascopy July 07 2014 EUR The European central Bank did not surprise analysts on Thursday, acting in line with expectations. The central bank left the monetary policy unchanged, deciding to allow recently launched measures to work their way through the economy before taking any additional steps in order to prop up growth in the 18-nation region. Thus, Mario Draghi said Eurozone interest rates will remain at 0.15% for an extended period, after cutting the benchmark rate from 0.25% to 0.15% and deposit rate from zero to –0.10% last month. Starting from January 2015 rate decisions will be taken every six weeks instead of monthly to avoid causing excess volatility in the markets. Mario Draghi said that the ECB will not synchronize its meetings with the Fed, which meets eight times a year, usually every six weeks. However, the ECB officials reiterated its pledge to use unprecedented measures in case the Eurozone’s annual rate of inflation will remain sticky for longer than it had projected. Moreover, the central bank has declined calls to embark on large-scale buying of assets in capital markets, also known as quantitative easing, as the central banks in Japan and the U.S. have done. The decision came after the IMF urged the ECB to consider QE to keep inflation from staying too low for too long. Draghi said the central bank would launch a programme of quantitative easing if its outlook for inflation over coming years were lowered. USD The U.S. labour market continues to improve, as the unemployment rate in the world’s number one economy declined to the lowest level since September 2008, adding to evidence that the recent contraction was just a temporary blip. Non-farm payrolls rose 288,000 after a revised 224,000 increase a month earlier, the Labor Department data showed. Over the past six months employers added 1.39 million jobs, the biggest rise over a similar period since early 2006. The U.S. jobless rate has been falling steadily in the past few years, dropping to 6.1% in June from 6.3% a month earlier, indicating that the nation’s economy is moving steadily closer to full health. Economists believe that healthy U.S. job growth should help boost more purchases of goods from Europe and Asia, thus strengthening their economies as well. Meanwhile, the main challenge for the U.S. is whether the job creation will attract more Americans into the workforce, as many people who lost jobs during the financial crisis have stopped looking for work. Currently just 62.8% of Americans either work or actively seeking for a job, compared to 66% before the recession. Following the data release, the U.S. Dollar was set for a weekly advance against its major counterparts as evidence of U.S. recovery gathering steam spurred speculation the Fed will announce the timing of interest rate hikes. GBP The pace of growth in the U.K. services sector slowed in June, clouding the country’s economic outlook. In its report Markit said the seasonally adjusted Markit/CIPS Services Purchasing Managers’ Index dropped to 57.7 in June from the May’s reading of 58.6. The figure was shy of analysts’ expectations for a decline to 58.3. Despite the disappointing headline figure, June’s data indicated the sharpest rise in new business volumes for six months, while all-sector index points at GDP quarterly growth of 0.8% in the three month to June. Recent sustained strong economic activity and elevated confidence in the outlook spur demand across a wide range of business services, including marketing and advertising, public relations, corporate finance transactions, etc. In the meantime, the overall substantial increase in the housing market activity helps estate agents and a number of other property-related services. Also, individual details of the survey remained strong and continue to indicate further economic strength going forward, supporting expectations economic growth will reach 3% this year and the Bank of England could start raising rates before the end of 2014. The Pound weakened versus the U.S. Dollar following the release of the data, with GBP/USD losing 0.15% to trade at 1.7138, down from 1.7156 ahead of the data. AUD Mixed data came out from Australia on Thursday, with building approvals posting the strongest monthly gain in eight months, while sales at Australian retailers slumped. Approvals for the construction of new homes jumped 9.9% in May, which was well ahead of expectations for a 3.2% increase, indicating that the housing sector will be the main driver for the Australian economy when mining investment fades. Over the 12 months, building approvals rose 14.3%. The rise was boosted by a strong increase in apartment approvals that had been struggling in recent months. Separately, the Australian Bureau of Statistics data showed that retail sales fell 0.5% month-on-month in May following a 1% drop a month earlier, compared to the 0.2% rise projected by economists. The bigger losers in May were clothing and footwear retailers, as clothing sales declined 2%, while footwear and accessories went down 2.9%. Meanwhile, Glenn Stevens, the RBA Governor, warned investors against belief housing prices will always rise and that the Australian Dollar might not weaken. The Reserve Bank of Australia expects that the Aussie is set for decline significantly, as Stevens believes at 94 U.S. cents Australia’s current exchange rate is far too high. Following his comment the Australian currency lost 0.5% to 93.92 U.S. cents.
Posted on: Tue, 08 Jul 2014 08:18:59 +0000
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