The US Dollar weakness continued against the major currencies last week; However the greenback ended the week on a relatively stronger footing as worries about the global economic recovery increased. The Euro reached a high of 1.5048 earlier in the week, before closing at 1.4911.
Sterling was among the biggest losers against the dollar as it dropped sharply form a high of 1.6844 to a low of 1.6514 before closing the week at 1.6668, mainly hit by the rating agency Fitch which warned that the UK was the most at risk of losing its AAA rating. The Japanese Yen traded in a narrow range between 89.20 and 90.60.
The Australian Dollar moved to a new 15-month high against the dollar reaching 0.9370, supported by a firm job report. Finally, the Swiss Franc traded between a high of 1.0193 and low of 1.0036.
Fed officials cautious on economic recovery
The US economy will be slow to recover from the deepest recession since the 1930s, as rising unemployment curbs consumer spending, Federal Reserve officials said in a string of speeches across the country last week.
They said that the US economy was still vulnerable as weak job growth, bank failures, foreclosures as well as heavy reliance on government support continue to weigh on the overall economic recovery. They also added that now that economic growth resumed, the overall objective of economic policy should be to create a robust recovery and an environment that reduces unemployment as quickly as possible, while containing inflationary pressures.
Few numbers were released last week in the US, with no major impact on the dollar. The initial weekly jobless claims fell to its lowest level since January, dropping to 502,000 from 514,000 the previous week, indicating that the hard-hit labour market might be slowly improving.
Unexpectedly, the US trade deficit widened in September by 18.2 per cent, the largest increase in the past 10 years as oil prices rose for seven-months consecutively. Finally, University of Michigan confidence survey dropped to 66 from a previous 70.6 in October because of surging unemployment.
Euro-zone GDP
The Euro-zone economy jumped out of recession in the third quarter of 2009, following five consecutive quarters of shrinking output. GDP in the 16 countries grew by 0.4 per cent ending the deepest economic downturn in Europe since World War II. Germany’s economy expanded by 0.7 per cent in the third quarter, marking a sharp acceleration in the recovery pace in Europe’s largest economy, supported by firmer exports as well as better than expected industrial output. France and Italy also reported third-quarter increases in economic output, however were slightly below market consensus.
Industrial production in the Euro-zone has risen by 0.3 per cent in September, its fifth consecutive month, boosted by production of capital goods and non-durable consumer goods. In Germany, exports recovered more than expected in September, rising by 3.8 per cent with the trade balance coming down to €9.9 billion from €10.6 billion in August.
New German export orders suggest that the export recovery is likely to continue and may indeed strengthen in the near-term. On the other hand, the economic sentiment from theGerman ZEW Survey came out weaker than expected at 51.1 in November from 56.0 the previous month.
The number of Britons claiming jobless benefits in October rose by its smallest amount in 18 months, while the number of people in work rose for the first time in year. Claimant count unemployment rose by 12,900 last month, below forecasts of an increase to 20,000.
The unemployment rate came out at 7.8 per cent, confounding expectations of a rise to 8.1 per cent, raising hopes that the worst of the recession has passed and that the unemployment will peak at a lower level than previously feared.
Inflation Report
The Bank of England expects inflation to exceed its two per cent target by middle of 2011, if interest rates remain at 0.5 per cent and the cash it has pumped into the economy as part of the quantitative easing program does not go beyond the £200 billion. Additionally, it has sharply upgraded its growth forecasts over the next two years, to 2.1 per cent for 2010 and 4 per cent for 2011. However, it sill expects any recovery to be slow and unstable because of how deeply output has fallen since last year.
British retail sales rose last month at their fastest annual pace since April, when sales were bolstered by the Easter cyclical high. The value of like-for-like sales rose 3.8 per cent in October compared with a year ago. In the housing sector, house prices in England and Wales rose last month at their strongest rate in almost three years, buoyed by tight supply and record low interest rates.
Australia’s Employment Report
The Australian labour market data was once again better than expected with employment rising by 24.5k, much stronger than the expected -10k in October. The solid gain in employment boosted expectations that the RBA, which has already hiked its policy rate twice in the past 4 months, is likely to raise interest rates again in December.
Gold hit a fresh record high of $1,122.85 a troy ounce last week due to persistent dollar weakness, fears of resurgence in inflation and hopes for more central bank gold buying.