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Markets were dominated by strong equities, a strong dollar and a weak yen last week.
It's clear that economic data from the US showed impressive improvements in the US economy.
Meanwhile, the top two Fed officials, Bernanke and Yellen indicated recently the central
bank would leave stimulus in place while data continues to show improvements. The DOW Jones
jumped to a new record high and closed strongly at 14,397 while benchmark 10 year yield was
also back above 2% to close at 2.056%. The Dollar was taken higher against European majors
and the Japenese yen whilst the dollar index surged for another week to close at 82.69.
Nonetheless the dollar was still bound in range against commodity currencies and Euro
US Dollar struggled to move away from the 1.3 psychological level. Yen's weakness was
indeed more broad based and one-sided: on expectation of aggressive easing measures
once Kuroda comes on board and holds his first Bank of Japan meeting in April. There were
a number of central bank meetings last week but: European Central Bank, Bank of England,
Reserve Bank of Australia and Bank of Japan meetings all failed to yield much impact.
Bank of Canada's neutral stance looked set to trigger another round of selloff in the
Canadian dollar but the loonie was then saved by strong Canadian job data.
In the US, the Non-farm payroll showed an impressive 236,000 growth in the US employment
market in February, much stronger than expectations of 158,000. January's figure was revised down
from 157 to 119,000 but that was more than offset by February's surprise gain. The unemployment
rate also dropped to a five year low of 7.7%, down from 7.9. The ISM services Index unexpectedly
improved to 56 in February. The Fed’s Beige Book suggested that economic activity expanded
at a "modest to moderate pace" with the majority of Districts reporting a "modest" improvement
in labor market conditions. Hiring plans were, however, "limited" in several Districts. On
consumer spending, most Districts reported an expansion despite slowdown in several others.
Manufacturing activities "modestly improved in most regions" and residential real estate
markets "strengthened in nearly all Districts".
Both the European Central Bank and the Bank of England left their monetary stance unchanged.
European Central Bank President Draghi stated that he expects the Eurozone should return
to growth in 2014 with the forecast range between 0 to 2% and inflation next year would
range from 0.6% to 2%. The Bank of England announced to keep the Bank Rate at 0.5% and
the asset purchases at 375 Billion pounds. The committee only released a short statement
and details of the discussion will not be fully disclosed until release of the minutes
on March 20th.
The Current Bank of Japan governor held his last meeting and kept rates unchanged at 0
to 0.1% by a unanimous vote. A board member proposed bringing forward open-ended Japanese
Government Bond purchases but that was voted down by 8-1. Another board member proposed
explicitly saying that the bank will keep rates near zero until hitting the 2% inflation
target but that was also voted down by 8-1. These proposals were seen as laying down the
ground work for aggressive easing when Kuroda takes up the Bank of Japan governor role later
in the month and there would likely be some eye-catching moves in Kuroda's first meeting
in April. Assessment of the economy was somewhat upgraded as the central bank said it appeared
to "have hit bottom".
The Bank of Canada left the overnight rate at 1%, with the Bank Rate at 1.25% and the
deposit rate at 0.75%. The policy statement was dovish as policymakers saw less urgency
in a rate hike than previously thought. The tone of the statement was similar to the previous
one with the broad outlook for the Canadian economy similar to January's. Policymakers
expected domestic growth would gain momentum through 2013 amid better household spending
and business investment and exports. The Canadian dollar jumped on Friday as the job market
grew by 50,700 in February compared to expectation of 7,800 while the unemployment rate was unchanged
at 7%.
The Reserve Bank of Australia left the cash rate unchanged at 3% for a third consecutive
month in March. While the policy outlook would remain accommodative, the central bank paused
this month as recent economic data suggested that Australia's economic growth was close
to trend with the help of an increase in resource sector investment. The central bank statement
showed few changes from the previous month, signaling that policymakers were holding more
or less the same views as last month concerning the economic outlook. The Aussie was supported
by solid retail sales and G-D-P data.
The Federal Budget Balance, US retail sales, Unemployment Claims and Consumer Sentiment
are the main market movers in the week ahead, follow forexcurrencytradingonline.co.uk to
keep track of all the forex news affecting the market this week.