Weekly Outlook Ending on 11th March 2017
Dollar pushes lower despite Positive U.S. Data.
The dollar slumped against a basket of major currencies, despite a better than expected February nonfarm payrolls report while weaker wage growth weighed on upside momentum. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, slipped 0.61% to 101.36.The dollar slumped to a three-week low, despite the U.S. economy adding more jobs than expected in February, as weaker than expected wage growth fuelled concerns that the pace of rate hikes this year would be slower than previously anticipated. The Labor Department's non-farm payrolls report showed employers added 235,000 jobs last month, beating expectations for 200,000. Wage growth stuttered in February and rose by only 0.2% compared to forecasts of a 0.3% increase. Investors were looking ahead to Friday’s government employment report for February, where a strong reading would cement expectations for a rate hike from the Fed next week. The greenback weakened mildly after the U.S. Department of Labor said on Thursday that initial jobless claims increased by 20,000 to 243,000 in the week ending March 4 from the previous week’s total of 223,000.Analysts expected jobless claims to rise by 12,000 to 235,000 last week. The euro remained supported after European Central Bank President Mario Draghi struck a more upbeat tone on the outlook for the recovery in the euro zone on Thursday, while reiterating that the present monetary policy stance remains appropriate. The comments came after the ECB kept interest rates unchanged at the outcome of its meeting earlier and reiterated they can be cut again in the future if necessary.
Euro holds steady against dollar, upward trend continues.
The pound hit a 31-year low against the dollar last week , while the euro also weakened versus the greenback. On Tuesday, Bank of England Governor Mark Carney said the BOE could to act to cushion the economy from Brexit fallout. Overseas dollar-denominated money funds saw $4.62 billion in outflows, lowering their total assets to $403.49 billion. This partly reversed the $20.9 billion in inflows the previous week. Euro fund yields averaged -0.40 percent, down from the prior week’s -0.39 percent, while the average yield on sterling funds held steady at 0.40 percent. The average yield on offshore dollar funds was unchanged on the week at 0.33 percent.. Still, core retail sales, which discounted the effects of auto purchases, increased by 0.8% above analysts' forecasts for gains of 0.5%.Investors also continued to react to a letter from Federal Reserve chair Janet Yellen to a member of the House Financial Services Committee on Thursday afternoon regarding the Fed's remote possibility likelihood of adopting a negative interest rate policy in the near future. In the letter addressed to Rep. Brad Sherman, Yellen said the Fed would not rule out the possibility of lowering rates into negative territory if an extremely adverse scenario arises in the coming months. Over the Federal Open Market Committee's (FOMC) first three meetings of 2016, the U.S. central bank has held its benchmark interest rate steady while central banks in Japan and the euro area have adopted negative interest rate regimes. Market players also reacted to a flattening in the yield curve between short-term U.S. 2-Year Treasuries and longer-term 10-Year government bonds in Friday's session. At session-highs, the 2-year surged to 0.786%, its highest level in 10 days. Around the same time, government bond yields on the 10-year fell to a one-month low at 1.705%. A flattening of the yield curve typically sends indications of a slowdown in short-term economic activity While some members were inclined to consider raising short-term interest rates later this month, the minutes from the March meeting suggest that the committee remains concerned about heightened global financial and economic risks abroad. Specifically, the majority of the members agreed that there could be little room to ease policy through conventional means if the economy or inflation suffered an unexpected shock.
Pound ends on a positive node as BOE Leaves the rate unchanged.
The pound rose, holding onto sharp gains from earlier in the session, after the Bank of England triggered a rally in the Pound by unexpectedly leaving its benchmark interest rate steady at a closely-watched meeting. The currency pair surged more than three cents to two-week highs 1.3463, before falling back slightly to 1.334 at the close of U.S. afternoon trading, up 1.47% on the session. The Pound Sterling opened on Thursday at 1.3121 after halting a three-day winning streak a day earlier. Since dipping below 1.28 last week to touch down to fresh 31-year lows, the Pound has rallied by 3% over the last week against its American counterpart. Over the last three weeks, the British counterpart has tumbled nearly 10% in the wake of the U.K.'s historic decision to leave the European Union on June 24.The Pound is now on pace for its strongest one-week move against its main rivals in nearly six years. In the U.K., the Bank of England jolted markets by holding their key interest rate steady at 0.5% and leaving its comprehensive Quantitative Easing program unchanged on Thursday afternoon. Following the 8-1 vote, Bank of England governor Mark Carney hinted that the BOE could approve fresh stimulus measures when meets again on August 4.While the Monetary Policy Committee (MPC) indicated that it will support any measure that helps promote economic growth and return inflation to its targeted objective, the participants appeared leery of making a knee-jerk reaction to last month's Brexit historic decision. Such a move, according to many economists, may have demonstrated excessive panic as markets throughout the euro area remain on edge. Annual consumer inflation in the U.K. remained at 0.3% in June, after hitting 15-month highs this spring.
Gold falls against strong Dollar.
Gold closed relatively flat on surging Dollar, as subdued consumer inflation data last month did little to dissuade dovish sentiments for an extend period of accommodative monetary policy from the Federal Reserve. On the Comex division of the New York Mercantile Exchange, Gold for March delivery traded between $1,194.56 and $1,204.50 before settling at $1,204.85, down 4.45 or 0.33% on the session. After surging to 28-month highs last week, Gold has retreated over the last seven sessions, losing approximately 2% in value over the span holding near two-week lows. With the declines, Gold finished with its first negative week since early-June. Still, the precious metal is on track for one of its strongest years on record after soaring roughly 25% year to date. Gold likely gained support at $1193.50, the low from June 8 and was met with resistance at $1,205.40 the high .On Friday morning, the U.S. Labor Department said its Consumer Price Index rose by 0.2% in June, amid firming price pressures in services, transportation and medical care. The gains fell slightly below analysts' expectations of a 0.3% increase, one month after rising by 0.2% in May. On a yearly basis, consumer prices rose by 1.0%, one month after rising by an upwardly revised 1.1%.
Crude ticked up despite of record output Reports.
Crude prices inched up on Friday after dropping to their lowest in more than three months the session before, pressured by concerns that a global supply glut is proving stubbornly persistent. U.S. West Texas Intermediate crude (WTI) was up 37 cents, or 0.8 percent, at $49.65 a barrel at 0604 GMT. It fell below $50 on Thursday for the first since mid-December, when OPEC and other producers agreed to cut output. Brent crude was up 35 cents, or 0.7 percent, at $52.54 a barrel, having settled down 1.7 percent in the previous session and slumping 5 percent the day before in its biggest percentage decline in a year. WTI is on track for a 7 percent decline this week, the biggest weekly drop since early November. Brent is heading for a 6 percent fall, also the biggest since early November.
Market confidence has taken a hit after a period of higher prices enticed more U.S. shale oil companies to drill more wells and as stockpiles have remained high. "Steep price falls in the last two days amid building U.S. inventories show that the market remains concerned about the supply-demand balance," NAB Group Economics said in a research note. Data showed crude stocks in the United States, the world's top oil consumer, swelled by 8.2 million barrels last week to a record 528.4 million barrels. U.S. drilling has also picked up, with producers planning to expand crude production in North Dakota, Oklahoma and other shale regions, while output has jumped in the Permian, America's largest oilfield..
It was a good week for U.S. equities. Starting with the U.S. stocks; Dow Jones gains 277 points and 1.49%. Nasdaq Composite added 0.79% and down by 40 point. S&P 500 up by 24 points and 1.10% for the week.
Coming to European counterparts, UK’s FTSE 100 up by 31 points and 0.46%. German DAX 30 also added 304 points and 3.01%. Additionally French CAC 40 gain 138 points and 3.15% on the weekly basis.
In commodities Gold down by $33 and 2.46% while Crude Oil down by $2.28 and 4.76% over the week.
Euro down by 0.76% over the week while Yen gain 4.60. Pound loss 1.51% & Ice dollar index got 1.35% on this week.
Note: Here all the currencies are measured in percentage against the U.S. dollar