The dollar rose versus the yen Friday after Janet Yellen moved one step closer to the top job at the Federal Reserve. The Senate Banking Committee voted to approve Yellen’s nomination to become Fed chairman next year.
US FOMC’s minutes from the Oct. 29-30 was the main events of the week.
Minutes showed that officials were considering reducing the size of the Fed's asset purchase program - even "before an unambiguous further improvement in the labor-market outlook was apparent." And "many members" stressed the data-dependent nature of the current asset purchase program, and some pointed out that, if economic conditions warranted, the Committee could decide to slow the pace of purchases at one of its next few meetings.
The Organisation for Economic Cooperation and Development cut its global growth forecasts for this year and the next. The world economy will probably expand 2.7% this year and 3.6% next year, down from its May predictions of 3.1% and 4% respectively, the Paris-based OECD said.
EURO
The euro managed to recover earlier losses Friday and rose to the highest in more than four years versus the yen after a German report shows Europe’s economic recovery may be gaining momentum, easing speculation the central bank will cut interest rates further.
The Ifo institute’s German business climate index increased to 109.3 from 107.4 in October. That was the highest reading since April 2012. Economists forecast a gain to 107.7.
The ZEW Survey was mixed. The key survey showed that the Economic Sentiment rose to 54.6 for the month of November, exceeding expectations and the previous print at 54.0 and 52.8, respectively; however, the Current Situation component dropped to 28.7 vs. 31.0 forecasted and October’s 29.7.
The Bundesbank said last week that the German economy remains on a “solid growth path.” Investor confidence rose to the highest level in four years in November, unemployment remained near a two-decade low in October and factory orders climbed more than economists predicted in September.
The euro rose Thursday as ECB President Mario Draghi damped speculation of negative deposit rates after the central bank unexpectedly cut them to a record low 0.25% on Nov. 7.
POUND
The pound declined from a two-week high against the euro as Bank of England policy maker Spencer Dale said it would take a long time until the U.K. economy was strong enough to justify higher interest rates.
U.K. policy makers will raise interest rates “when we’ve seen a sustained recovery and the economy is strong enough to stand it,” Dale said. “The message we’ve been giving to businesses is that we don’t think that’s anytime soon.”
Bank of England officials are not in a “rush” to increase the benchmark rate from a record-low 0.5%, the Sun newspaper quoted Deputy Governor Charles Bean as saying in an interview. While growth was picking up it was still muted, he said.
The pound has strengthened 6.8% in the past six months.
Sterling climbed Friday amid speculation U.K. data this week will confirm economic growth accelerated in the third quarter and a gauge of house prices rose for a seventh month.
Gross domestic product climbed 0.8% after growing 0.7% in the previous three months, according to a survey before the Office for National Statistics releases the figures on Nov. 27.
YEN
The yen reached a four-month low versus the dollar after Bank of Japan Governor Haruhiko Kuroda said he will do his utmost to restrict an increase in long-term yields.
Japan’s currency headed for a fourth weekly decline versus the greenback, the longest stretch since February, as Japanese bond yields fell to the lowest in two months relative to their U.S. counterparts.
Japan’s central bank kept its pledge at a policy meeting yesterday to expand the monetary base by as much as 70 trillion yen ($691 billion) a year to help spur inflation.
The yen isn’t “excessively weak,” Bank of Japan Governor Kuroda said in parliament Friday in Tokyo. Inflation will hit the BOJ’s 2% target in the latter half of the central bank’s two-year time frame and policy makers will adjust its bond-buying program as needed, he said.
COMMODITY CURRENCIES
AUSSIE: Australia’s dollar fell against all of its 16 most-traded peers amid speculation the nation’s central bank will take steps to curb the currency’s strength.
The Aussie fell for the third day against the dollar after Reserve Bank of Australia Governor Glenn Stevens said in a speech in Sydney yesterday that foreign-exchange intervention can be effective as long as it’s “judiciously used in the right circumstances.”
Analysts at Danske Bank said the “RBA does not rule out further rate cuts underscoring that it maintains an easing bias. In particular, RBA still regards AUD as overvalued and members noted that ‘a lower level of the exchange rate would be needed to achieve balanced growth’”.
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