Currency market. Weekly review (02.12 – 06.12.2013)

The dollar initially rallied Friday after better-than-expected U.S. jobs data, but it quickly gave back much of its gains against the British pound.

The Labor Department said Friday the U.S. economy added 203,000 jobs in November and the unemployment rate fell to 7% from 7.3%. Economists had expected a gain of 180,000 nonfarm jobs and an unemployment rate of 7.2%.

Chief economist Hatzius says the jobs report was pretty good overall but that he still does not expect the Fed to taper in December. He sees March as more likely than January.

Hatzius sees US GDP growth of 3%-3.5% next year.

The U.S. economy expanded in the third quarter at a faster pace than initially reported, led by the biggest increase in inventories since early 1998. Gross domestic product climbed at a 3.6% annualized rate, up from an initial estimate of 2.8% and the strongest since the first quarter of 2012.

A separate report showed applications for U.S. employment benefits decreased to 298,000 in the week ended Nov. 30. The median forecast of economists called for an increase to 320,000.

EURO

The euro rose to a five-week high against the dollar as ECB President Mario Draghi refrained from introducing further monetary stimulus. The ECB kept its interest-rate targets unchanged and gave no indication that policy makers will introduce a negative deposit rate that would drive investors into riskier assets.

Societe Generale experts said, Mario Draghi said nothing at press conference to encourage hopes of further easing. The impression he left was that things have to get worse (return to recession or deflation) before the ECB acts further. And they noted EUR/USD will drop to 1.20 on a 3-5yr view.

The Bundesbank raised German 2013 GDP forecast to 0.5% vs 0.3% prev on Friday. Bundesbank also raised the estimate for 2014 to +1.7% vs +1.5% in June and set a +2.0% for 2015. It still sees German inflation at 1.6% in 2013 but lowers 2014 forecast to 1.3% vs 1.5%.

Eurozone Services PMI fell to 51.2 points in November, from 51.6 points in October. Analysts expected more decrease to 50.9. PMI Composite dropped to 51.7 points in November, from 51.9 recorded the previous month and above expectations of a fall to 51.5.

EU GDP report has was as experts expected.

POUND

The pound tries to recover after a strong UK readings.

UK data showed Halifax House Prices grew 1.1% in November, following a 0.7% increase the previous month. Analysts expected less growth of 0.6%. On an annual basis Halifax House Prices climbed 7.7% in November, after rising 6.9% in October and above consensus of +7.2%.

Thursday the Bank of England decided to keep its key rate and the size of the bond buying program unchanged in December.

U.K. manufacturing increased at the fastest pace since in almost three years in November, while the construction and services industries also expanded, according to data this week.

Chancellor of the Exchequer George Osborne in his Autumn Statement said U.K. borrowing requirements will decline in the coming years, citing forecasts for stronger growth.

YEN

The yen fell earlier after the head of an advisory panel called on Japan’s Government Pension Investment Fund to reduce domestic debt holdings. The 17-nation euro fluctuated versus the dollar after European Central Bank refrained from adding to monetary stimulus.

Japan’s currency dropped as pension fund advisory group chairman Takatoshi Ito said the 124 trillion yen ($1.21 trillion) fund should trim local bonds immediately to its lower limit of 52 percent of assets. The fund’s portfolio was 58 percent comprised of Japanese debt as of Sept. 30, according to the latest quarterly report on its website.

“The Ministry of Health has given an OK to everything that was said in the report,” Ito said in an interview in Tokyo. “GPIF needs to start reducing bonds as soon as possible to its lower limit of 52 percent.”

COMMODITY CURRENCIES

AUSSIE: Australian dollar dipping after the Reserve Bank of Australia kept rates at a record low of 2.5%.

Australia's current account deficit widened to a seasonally adjusted 12.7 billion Australian dollars (US$11.6 billion) in the third quarter of 2013 from the second quarter, the Australia Bureau of Statistics said Tuesday.

Australian dollar also tumbled after the country’s disappointing third-quarter growth data. Data showed Australia’s economy grew 2.3% in the third quarter from a year earlier, compared with expectations for a 2.6% rise in gross domestic product.

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