The dollar fell Friday on worries about a looming U.S. government shutdown and concerns about when the Federal Reserve will pare its bond-buying program.
Charles Evans, president of the Chicago Federal Reserve
Bank, tossed some cold water on a taper before 2014, but he also said
that there was a “decent” chance of a taper later this year. But the
dollar remained weaker on the day due to budget wrangling in Washington.
Congress has to agree on a budget bill before the new fiscal year
starts on Oct. 1 to avoid a government shutdown.
President Barack Obama said on Thursday that opponents of
his health-care law have become “more irresponsible” and that he
wouldn't agree to defund the health-care law as House Republicans have
requested in exchange for avoiding a government shutdown.
In the U.S., jobless claims decreased by 5,000 to 305,000
in the week ended Sept. 21, a Labor Department report showed today in
Washington.
Gross domestic product in the world’s largest economy rose
at a 2.5% annualized rate, unrevised from the previous estimate, after
expanding 1.1% in the first quarter, Commerce Department figures showed.
The median forecast was for a 2.6% pace.
Kocherlakota said the economic consequences of any QE3
taper are small and part of what’s slowing growth is uncertainty about
what Fed will do as economy improves.
Fed’s Kansas Esther George told that “Delaying QE
"tapering" may threaten FOMC credibility. Also, added she opposed more
stimulus at every Fed meeting this year, while Fed should alter policy
to "more normal conditions" as clear job gains warrant reduced
bond-buying.” What’s more, she also mentioned that “she would start with
a $15 Bln Taper. Sees inflation expectations as "pretty well anchored",
while she hopes to see a "diverse" Federal Reserve Board of Governors.”
Finally, she said “that there is excessive risk taking in the leveraged
lending market. One of few voters discussing the costs of stimulus.”
Morgan Stanley raised its forecasts for most Group of 10
currencies against the dollar, according to a report yesterday. It
predicts the euro trade at $1.30 by the end of 2013 from $1.28
previously, while maintaining its estimate of $1.23 by end of next year.
The bank sees the pound at $1.58 by Dec. 31 from an earlier estimate of
$1.50.
EURO
The euro was volatile during the week.
German Chancellor Angela Merkel’s Christian Democratic bloc
won 41.5% of the vote in yesterday’s election. She may form a coalition
with the Social Democratic opposition or the Green after her Free
Democratic allies failed to take any seats in the lower house of
parliament. Negotiations to form German governments usually last from
four to six weeks.
ECB’s Mersch said eurozone growth remains weak with only first green shoots of recovery and unemployment unacceptably high.
According to ECB’s Constancio: the European recovery is still fragile and much weaker than the US.
Data released showed September EMU economic sentiment rose to 96.9 vs 96.0 expected.
The IFO Business Climate component came in at 107.7 vs.
expectations at 108.2 and Current Assessment followed suit dropping to
111.4. Only the Expectations series surpassed estimates and previous
reading at 104.2.
ECB’s Ewald Nowotny advised to be carefull with programme
of stimulus. Ha said ,exit strategies have to be designed in cautious
manner.
POUND
The pound was strengthening across the board after Bank of
England's Governor Mr. Carney was saying "he does not see a case for
more QE in the UK."
Data released showed on an annual basis UK Nationwide
Housing Prices increased 5% in September, up from 3.5% the previous
month. Analysts expected less growth of 4.5%.
Month-over-month Nationwide Housing Prices climbed 0.9% in
September, following a 0.7% rise in August and above consensus of
increasing 0.5%.
The pound earlier fell from high after GDP and current
account data. On a quarterly basis UK GDP increased 0.7% in Q2, up from
the 0.3% rise registered the previous quarter. This result is in line
with market consensus. But year-over-year GDP rose 1.3% in Q2, slightly
down from +1.5 in Q1 and below expectations of 1.5% growth.
The UK Current Account deficit narrowed to £-13.0B in Q2,
from £-21.8B in Q1, while analysts expected the deficit to narrow
further to £-12.0B.
FRANC
The Swiss franc is still highly valued and the central
bank’s currency ceiling remains essential for safeguarding the economy,
Swiss National Bank President Thomas Jordan said.
Citing the risk of deflation and a recession, the SNB set a
cap of 1.20 francs per euro in September 2011 after investors anxious
about the region’s sovereign debt crisis pushed the franc close to
parity.
An easing of market stress has allowed the franc, popular as a haven, to depreciate 1.8% against the euro this year.
The 17-nation currency bloc will contract 0.4% this year,
according to the European Central Bank’s forecast. By contrast,
Switzerland will grow 1.5% to 2% in 2013, the SNB said at its quarterly
policy review last week. The central bank also stuck with the cap,
citing the possibility of Europe’s debt crisis intensifying again.
The SNB spent 188 billion francs ($206 billion) on buying
foreign currencies last year to defend the cap. SNB policy makers have
stressed that without the cap, Switzerland would have suffered a severe
recession.
YEN
The yen strengthened as investors sought safety amid
concern a budget deadlock among U.S. lawmakers will send the nation to
the brink of a federal government shutdown.
The U.S. Senate plans to vote today on a spending bill,
three days before federal spending authority runs out and a few weeks
until the country hits its borrowing limit.
Also the yen advanced, heading for its second weekly gain
versus the dollar, after comments by Japan’s Finance Minister Taro Aso
damped bets the government will cut corporate taxes, boosting demand for
the currency as a haven.
Data released showed core consumer prices rose 0.8%
nationwide in August, slightly stronger than economists predicted,
although prices in the capital city of Tokyo recorded a
weaker-than-expected increase.
The yen has advanced 1% in the past week.
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