Currencies Update 25th November 2013
The pound strengthened against its main rivals last week, inching up against the euro and dollar. Sterling climbed to a two-week high against the euro and moved close to its highest level versus the Greenback since the end of October. Gains were capped on Friday (November 22nd), however, as Bank of England policymaker Spencer Dale said it would be a long time before the UK was strong enough to cope with higher interest rates. Sterling also rose to a three-year high against the Australian dollar ahead of data due this week expected to show UK growth accelerated in the third quarter. The pound was also close to a five-year high against the yen.
The euro was broadly steady last week, posting some gains later on against the dollar having earlier fallen on signs the Federal Reserve appeared closer to tapering stimulus than previously thought. ECB chief Mario Draghi also played down talk the bank is considering negative deposit rates, further boosting the currency. The euro recouped some losses against sterling later in the week, having dipped to a two-week low. Just like the other majors, the single currency rose strongly against the yen, reaching a four-year high. A big rise in the IFO German business confidence index is expected to drive the euro higher as reports begin to build a picture of recovery in the bloc.
The dollar surged on Wednesday after the Fed said it could taper in the “coming months”, but advances against majors were kept in check by a mixed bag of economic data from the US. The Greenback lost ground on the pound, but moved sharply higher against the yen as the divergence in US and Japanese monetary policy becomes starker. USD/JPY was up around one per cent. And after a volatile week, USD/CHF ended the week almost flat.Speculation the Fed will dial back stimulus saw the dollar move higher against emerging market currencies, which had a tough time last week. Looking ahead, key data on durable goods orders, unemployment figures and home sales will offer investors more clues about when the Fed will see the US eco nomy is ready for tapering.
The yen suffered a fourth weekly drop against the dollar as the currency slid against all 16 of its major rivals after the Bank of Japan held firm on its massive easing programme. The bank reaffirmed its plan to expand the monetary base by as much as JPY70 trillion yen (USD 69 billion) a year to help spur inflation. The yen was at multi-year lows against the euro and pound, whilst also sliding to a four-month low against the dollar. JPY is down 12 per cent this year.
The Aussie matched its longest run of weekly losses in seven years, following comments by RBA governor Glenn Stevens, who said the bank was “open-minded” about exchange rate intervention. The Aussie slipped to a five-year low versus its New Zealand counterpart, while plumbing a three-year trough against sterling.
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