At the end of the week markets came under pressure as U.S. President Barack Obama consulted with key European leaders on the Ukraine crisis, warning Russia that they are prepared to proceed with more significant sanctions against the country.
The consultation came after U.S. Secretary of State John Kerry late Thursday accused Russia of violating its commitment to ease tensions in eastern Ukraine.
In response to the crisis-fueled volatility on financial markets, Standard & Poor’s Ratings Services on Friday cut Russia’s credit rating to one notch above junk.
Meanwhile, Russia’s central bank on Friday bumped up its key interest rate by a half-percentage point to 7.5%.
The dollar climbed earlier to the highest level in two weeks against a basket of peers after U.S. durable goods orders rose more than forecast in March.
The dollar declined after sales of new U.S. homes unexpectedly plunged to the lowest level in eight months. Sales of new American houses dropped 14.5% to a 384,000 annualized pace, lower than forecasts of all economists and the weakest since July, Commerce Department data showed. The median forecast of economists called for the pace to accelerate to 450,000.
Friday’s report showed the University of Michigan Consumer Sentiment report for April was revised up to 84.1 from 82.6 in the final reading, while the consensus expected the reading to hold at 82.6.
EURO
Euro weaked after Draghi’s speech. Today Head of ECB Mario Draghi said that the exchange rate is not a policy target but that a further strengthening of the euro could provoke more easing.
ECB head also suggested that if the medium-term outlook for inflation deteriorated, the central bank could initialize broad-based asset purchases.
Draghi said that the Governing Council was discussing the possibility of publishing minutes from the monetary policy meetings as well as changing the frequency with which the meetings are held.
German IFO results boosted the euro, with Expectations (107.3) and Business Climate (111.2) surpassing expectations at 105.8 and 110.5, respectively for the month of April.
There was only one chance for the euro to recover – German data. The Manufacturing PMI came out at 54.2 vs 53.9 forecasted, thus triggering some recovery for the pair.
Preliminary Eurozone PMI Manufacturing improved to 53.3 points in April, from 53 points in March, according to data released. PMI Services climbed to 53.1 points in April, from 52.2 the previous month and above expectations of an increase to 52.4. PMI Composite edged up to 54 from 53.1, against forecasts of staying unchanged.
POUND
The pound gained after strong UK retail sales data.
The pound continued to look well supported yesterday, trading just shy of the GBPUSD 2014 high. Talk of some significant merger and acquisition activity that generated GBP buying drove some of the Sterling strength, continuing the recent theme of the pound not only being supported by fundamental news but also M&A activity
According to thr MPC minutes released, the BOE MPC voted 9-0 to keep rates and QE on hold. The MPC sees economy growing around 1% Q1 and Q2, sees risks from widening of UK current account, sees risks in low euro area inflation. The memebers note the UK recovery building momentum.
FRANC
SNB, Jordan said that CHF is still high:
- danger of sudden upward pressure still not averted
- EURCHF cap at 1.2000 remains the key monetary policy tool
- ready to take extra measures if needed
- ready to purchase unlimited fx to defend cap
- mortgage market is risk to swiss price stability
- environment is “extremely challenging” for Swiss economy
- rate increase not an option as it would increase upward pressure on CHF
- no risk of inflation for foreseeable future
- Q1 property price momentum similar to Q1 2013
- Swiss referendum decision on immigration creates economic uncertainty
YEN
The yen rose to the highest level in a week against the dollar as President Barack Obama discussed with European leaders deepening sanctions against Russia, underpinning haven demand.
Tokyo prices excluding fresh food climbed 2.7 % in April from a year earlier, the most since April 1992, pumped up by a sales-tax increase and a year of unprecedented central bank stimulus weakening the yen. The inflation rate was 1% in March.
The yen has advanced 2.4% this year, the third-best performer of 10 developed-nation currencies.
COMMODITY CURRENCIES
AUSSIE: The Aussie fell. The nation’s core consumer prices gained less than economists forecast last quarter, allowing the central bank to extend a period of steady interest rates. The trimmed mean gauge of core prices rose 0.5% from the previous quarter compared with the median forecast of economists for a 0.7% gain.
The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 48.3 in April, matching the median estimate of analysts. While that was higher than the final March figure of 48, the reading remains below the level of 50.
KIWI: The New Zealand dollar climbed to a one-week high last week after the country's central bank said it would continue to tighten policy. As expected, it hiked its cash rate to 3.0% from 2.75%.
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