Last week the FX markets witnessed large swings, mainly due to uncertainty over Spain’s bailout plan, better than expected economic data from the US and geopolitical tensions between China and Japan over the disputed Islands.
United States
The US Dollar had a strong performance it started the weak on a positive tone then lost steam in the middle of the week only to recover on Friday and close near its weeks high. The Dollar Index opened the week at 79.43 moved to a high of 80.02 then dropped down to 79.33 only to recover and close the week at 79.39. The Euro, started the week on a negative note, dropping to a two-week low of 1.2827 against its US counterpart, as uncertainty in the markets mounted on when Spain would request a bailout. The Euro closed near its weeks low at 1.2854.The Sterling Pound had a somewhat similar performance opening at 1.6231, and then rallied to 1.6272 before it dropped sharply and closed the week at 1.6164.
The US Dollar drop continued against the Japanese Yen reaching a two-week low of 77.41 before recovering slightly and closing the week at 77.96.The resent strength in the Japanese Yen has hampered the Japanese economic recovery, fuelling concerns that the world’s third largest economy could slip into recession later this year. The Australian Dollar followed suit, opening at 1.0458 then easing towards a low of 1.0329 as tension between China and Japan intensified over the disputed islands, the Australian Dollar closed at 1.0375.
On the commodities side, Gold resumed its five-month rally, reaching a high of $1,783.10 an ounce, after Spain announced its budget reform plan. The commodity closed the week at $1,772.25.
On the other hand, oil had a volatile performance last week, as tensions between Iran and the west reinforced concerns about potential supply disruptions. The commodity started the week trading at $92.89 per barrel, and then dropped towards a seven-week low of $88.95 before recovering and closing the week at $92.19.
US consumer confidence index
The US Consumer Confidence Index rose in September to 70.30 from an upwardly revised figure of 61.3 in August. Consumer confidence jumped to its highest level in seven months in September, as Americans were more optimistic about the job market and income prospects.
US new home sales
The US new home sales held near its two-year highs in August and prices rallied to their highest level in more than five years, adding to signs of a broadening housing market recovery. New Home sales dipped 0.3 percent to a seasonally adjusted 373,000, but the decrease was from an upwardly revised 374,000, at the same time, the median price of a new home increased a record 11.2 percent in August to USD 256,900, the highest level since March 2007. Federal Reserve Chairman, Ben Bernanke, stated that “housing was the missing piston in the recovery process” and that the central bank would buy USD 40 Billion in mortgage-backed securities per month, until the outlook for employment improved significantly.
Jobless claims in the US showed weakness
Fewer Americans than forecast filed claims for unemployment benefits, a sign that the labor market is getting back on track. Applications for jobless benefits decreased 26,000 to 359,000, the lowest since July, compared with market expectation of 375,000 claims, adding to signs that an economic recovery is underway.
Europe
Germany business sentiment
German business sentiment dropped for the fifth consecutive month in September, against all expectations for a mild improvement, in a sign that German companies are negatively affected by the Euro Zone debt crisis, which has reduced the export markets and hampered investment. The Business Climate index, based on a monthly survey of some 7,000 firms, fell to 101.4 in September from 102.3 in August.
Germany unemployment
German unemployment rose by 9,000 in September for a sixth month running in September, suggesting domestic demand might not be able to compensate for weakening exports amid the Euro Zone crisis. The unemployment remains near to its lowest level since German reunification, and the unemployment rate held constant at 6.8 percent.
Spain Announces its Crisis budget for 2013
Spain announced a crisis budget for 2013 based mostly on spending cuts; many investors see it as an effort to prevent the conditions of an international bailout. The central government sees budget savings of 13 Billion Euros in 2013, with spending down 7.3 percent, including income rising 4 percent due to a 15 percent increase in value-added tax.
Spain Banks Stress Test result for 2013
An independent stress test, aimed to lift doubts about Spain’s banking sector, showed that the banking industry would need 59.3 billion Euros in additional capital to cope with a serious economic downturn. Spain, however, said it would only ask for 40 billion Euros in European aid for its banks. The Spanish government commissioned the stress tests as part of terms to win a European bailout of as much as 100 billion Euros for its banking system. The EU Commission welcomed the results of the stress tests in a statement, saying that state aid will be determined in the coming months and that banks now need to file recapitalization plans.
United Kingdom
UK Current Account Deficit
The United Kingdom’s current account deficit was GBP 20.8 billion in the second quarter of 2012, up from a revised deficit of GBP 15.4 billion in the previous quarter. The trade deficit widened to GBP 10.1 billion in the second quarter of 2012 due to higher energy cost and weak export market.
Commodities
Gold Maintains its Strength
The Gold climbed to $1,783.10 an ounce this week before closing the week at $1,772.25, the rally was fuelled by optimism amid budget reforms in Spain and expectations that China will take more steps to boost its economy.
Oil Regains Its Strength
Crude oil traded upwards and recovered from its seven-week low of $88.95 a barrel. Oil reached a high of $93.20 before closing the week at $92.19, spurred by tensions between Israel and Iran.
Kuwait
Kuwaiti Dinar at 0.28110
The USDKWD opened at 0.28110 on Sunday morning.
The Peninsula
