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06.02.2012 08:43

Forex: Weekly’s review

On Monday the yen strengthened against all of its major counterparts as concern increased that Greek bailout negotiations will hinder efforts to resolve the financial crisis, boosting demand for haven assets. The euro fell below 100 yen for the first time in a week as European Union leaders met in Brussels, and Italy raised less than its maximum target at a bond sale after Fitch Ratings downgraded the nation last week. The dollar touched the weakest against the yen since Oct. 31, when it reached a record low. The Swiss franc strengthened to the highest level against the euro since September.

On Tuesday the euro fell to its weakest level in almost a week versus the dollar as investors speculated European policy makers won’t be able to reach an agreement regarding Greece’s debt obligations. The euro weakened against the majority of its most- traded peers as Standard & Poor’s increased the number of Portuguese banks on “creditwatch negative.” Greece pledged a last-ditch effort to prevent the collapse of a second rescue package from creditors, aiming to complete talks this week on a financial lifeline that’s been in the works for six months.

On Wednesday the euro rose against the dollar for the first time in three days as a purchasing managers’ index of manufacturing output in the region beat analysts’ estimates, adding to signs Europe’s economy is stabilizing. The euro reversed an earlier decline after Markit Economics said its manufacturing gauge based on a survey of purchasing managers in the euro region rose to 48.8 in January from 46.9 in December. In Germany, the output gauge reached the highest in six months. The greenback fell versus 14 of its 16 most-traded peers after manufacturing in China and the U.S. also rose, damping demand for safer assets. The official Chinese purchasing managers’ index increased to 50.5 from 50.3 in December, though the data may have been distorted by a week long holiday. U.S. manufacturing expanded at the fastest pace since June. The Institute for Supply Management’s manufacturing index rose to 54.1 in January from 53.1 in December, the group said today. Companies in the U.S. added 170,000 workers in January, reflecting job gains in services and at small businesses, according to a private report based on payrolls.

On Thursday the euro fell against the majority of its most-traded counterparts as Greece struggles to reach an agreement with its bondholders on cutting the nation’s debt burden. Luxembourg Prime Minister Jean-Claude Juncker said steps to tackle the debt crisis adopted at a summit on Jan. 30 were “largely insufficient.” China’s Premier Wen Jiabao said his nation supports European efforts to stabilize the 17-nation currency. China is still researching the best way to participate in the European Financial Stability Facility, Wen said at a briefing with German Chancellor Angela Merkel in Beijing. The dollar rose before a report that may show employers boosted payrolls in January and the jobless rate held at an almost three-year low. Applications for unemployment insurance payments in the U.S. dropped by 12,000 to 367,000 in the week ended Jan. 28, Labor Department figures showed today in Washington. Fed Chairman Ben S. Bernanke said the economy has shown signs of improvement while remaining vulnerable to shocks, and he called on lawmakers to reduce the long-term U.S. budget deficit.

On Friday the dollar gained, recovering from an almost postwar low against the yen, after U.S. employers added more jobs than forecast, damping speculation the Federal Reserve will add another round of asset purchases to spur growth. Nonfarm payrolls rose by 243,000, after a revised 203,000 gain in December, the Labor Department reported today in Washington. The unemployment rate fell to 8.3 percent. Data this year have signaled the U.S. economy is recovering at a quickening pace. Manufacturing grew in January at the fastest pace in seven months, the Institute for Supply Management reported Feb. 1. Consumer confidence rose last month to the highest level in almost a year, according to a Thomson Reuters/University of Michigan index published Jan. 27. The Japanese currency dropped, after trading within one yen of its post-World War II high versus the dollar, reducing speculation the nation will intervene in the currency market to stem its appreciation. Japan’s Finance Minister Jun Azumi has said he will take decisive steps against one-sided moves in the yen if needed. The currency’s level doesn’t reflect economic fundamentals, and falling U.S. interest rates are increasing speculative yen buying, he told reporters in Tokyo.

Market Focus

  • The eurozone started the third quarter on a solid footing, according to PMI survey data
  • Earnings Season in U.S.: Major Reports of the Week
  • German private sector output growth slowed for the second month running in July
  • ECB's Mersch says as conditions normalise, it is unlikely that uncoventional policies will remain necessary
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