Following a volatile week that saw the U.S. Dollar sustained wild fluctuations, investors saw the greenback consolidate and rally again by the end of last week. Economists believe that the Federal Reserve won't be distracted by a slowdown of other major global economies and may conclude its bond-purchasing program. While it remains true that central bank official James Bullard cast doubts on the bank's next move, speculators believe that a recent string of positive data out of the U.S. may translate into a boost to the key cash rate by the middle of 2015. Friday's economic fundamentals confirmed a surge in Housing Starts in September, a rise in Building Permits, and a major hike in Consumer Confidence. Most analysts are of the opinion that the U.S. will be able to maintain the current momentum.
Gold earned a weekly profit despite closing lower at the conclusion of trade as the markets stabilized while concern over global economic slowdown declined, ebbing demand for harbor assets. Even though the shiny metal did not post a major hike on Friday, the commodity rose 1.39 percent last week. Futures for delivery in December erased 1.8 percent, and traded at $1,239.00 a troy ounce on the Comex Division of the New York Mercantile Exchange. Prices surged on Wednesday when investors grew worried the global economic slowdown could have a negative effect on the U.S. In the days ahead, the U.S. will issue metrics on New Home Sales and Consumer Price Inflation. Speculators will pay close attention to the announcements in order to obtain insight on the strength of the U.S. economy.
The Euro depreciated, although investors were set at ease by a number of speeches delivered by European officials. ECB member Ewald Nowotny suggested that policy makers may take further steps to address inflation, and has not ran out of options. Mr. Nowotny indicated that the central bank could start quantitative easing in December. The 18-nation currency sustained a modest hike last week despite worries over the rise in debt yields printed by several member nations. However, the Euro's rally was reversed after the U.S. offered solid macroeconomic releases. The British Pound erased some of its losses on Friday, despite the lack of fundamentals out of the U.K. Chief Economist for the Bank of England, Andy Haldane, said that the benchmark interest rate would remain at the present low for a long period, given the lackluster outlook for most of the world economies. In the week ahead, the United Kingdom will publish growth data for the third quarter.
The Yen declined against most of the majors as risk appetite improved in the Forex exchange. Economists believe that Japan's economic recovery is losing momentum as a result of the sales tax increase implemented in April. They say that the drop in consumer spending has put inflation at risk. Prime Minister, Shinzo Abe has intimated the likelihood of further stimulus, although the Bank of Japan has not seen the need for such at this time.
The Australian Dollar weakened against the greenback on concerns that a fall in commodity demand from China could have a negative effect on the Aussie economy. Iron ore and copper, two metals which constitute Australia's sources of revenue have fallen in price, and this has exerted pressure on the currency. New Zealand's Dollar also weakened as investors await economic announcements out of China, scheduled for release in the coming days.
EUR/USD- Companies Hedge The Euro
The EUR/USD slumped after the U.S. printed positive reports signaling recovery for a number of sectors. However, with the Euro's drop, many companies are considering hedging the currency beginning in 2015 as a way to protect themselves from further declines in the EUR/USD. These companies have indicated that every time the EUR/USD dips by one pip, they loses millions of dollars. The possibility that the pair could plunge to $1.2000 has become very real, but fears over a crisis in the Euro region ebbed slightly after ECB President Mario Draghi said he supports bringing in fiscal reforms, which could lead to job creation. The former chief of the Institute of International Finance, Charles Dallara indicated that many E.U. nations are in serious need of structural modifications, and that Germany, the region's biggest economy, should implement stimulus. He concluded by saying that the Euro region ought to stop trying to reduce the deficits so as to concentrate on more productive measures. In the past week, Germany cut its growth forecast for this and the coming year. But Angela Merkel, the nation's Chancellor stated that investments can increase without the having the country adhere to the Euro-zone's debt regulations.
GBP/USD- Sterling Little Changed
The GBP/USD traded more or less unchanged subsequent to the publication of reports denoting surprising hikes in U.S. Housing Starts, and a dramatic surge in Consumer Confidence. Meanwhile, in the U.K., the Bank of England has suggested it may not increase the costs of borrowing money, citing a slowdown in inflation as one of the main reasons Officials have indicated that the slowdown in salary growth, together with a drop in commodities could prompt the central bank to adhere to this stance for some time to come. The GBP/USD slumped to the lowest rate in eleven months early last week when the U.K. announced that the annual inflation rate read at 1.2 percent in September, divulging a decline from 1.5 percent posted in August.
EUR/JPY- Yen No Longer In Spotlight
While the EUR/JPY traded to the downside for most part of last week, it rallied on Friday. The Euro received some support from bearish comments by Euro-zone officials. But the Japanese economy is facing challenges, as exports have dropped and the effects of the sales tax increase have not ebbed. Sources say the Bank of Japan considers that the global economic slowdown may be temporary, and unlikely to dampen Japan's growth. The bank's governor, Haruhiko Kuroda continues to maintain his optimistic tone and believes that the country will reach the 2 percent inflation target. But Prime Minister, Shinzo Abe considers that the nation could use further stimulus to ignite economic expansion.
NZD/USD- Chinese Troubles Weigh On Kiwi
The NZD/USD fell further as the Reserve Bank appeared to back off from boosting the benchmark interest rate. The pair was also impacted by lackluster Consumer Price metrics from China, and the possibility that the Euro region could face another financial crisis. Chinese inflation went down 1.6 percent last month, after previously posting at 2 percent. Reports have shown that inflation is printing below target around the globe. In light of these factors, the Reserve Bank of New Zealand announced that beginning in December, it will increase the number of currencies in the basket that it now utilizes to gauge the value of the Kiwi. The bank hopes to get a better idea about the country's trade relationships.
Today's Outlook
Today's economic calendar shows that the Euro region will report on the Current Account and Net Investment Flow. Australia will release the Monetary Policy Meeting minutes. And China will publish GDP, Retail Sales and Industrial Output.