Weekly Money Market Review with IBQ: Fed rate rise expectation fuels demand for the dollar
Published: Sep 29, 2014
Source: Peninsula Qatar


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Weekly Money Market Review with IBQ: Fed rate rise expectation fuels demand for the dollar

Last week the dollar traded near four-year highs against a basket of major currencies, as demand for the dollar remained supported by mounting expectations that the Federal Reserve could raise interest rates sooner than expected. Solid US jobless claims supported the greenback as well despite a decline in durable goods. 

The dollar saw added support after Dallas Federal Reserve President Richard Fisher stated that the US central bank might start raising benchmark interest rates around the spring of 2015, earlier than many market expectations. While the Fed has suggested its bond-buying programme could close in October, uncertainty as to when rate hikes may begin in 2015 has investors concerned.   

The euro opened the week at 1.2835 and managed to reach a high of 1.2901. The single currency quickly came under pressure after ECB President Mario Draghi reiterated on Thursday the bank’s commitment to act with more policy measures to boost inflation in the euro zone. The currency dropped to a nearly two-year low of 1.2675 and closed the week at 1.2683.

The pound reached a high of 1.6415 only to lose most of its gains and close the week at 1.6245. The Japanese Yen opened the week at 108.96 against the greenback. The Dollar dropped as disappointing housing data prompted investors to book profits, pushing the USDJPY to reach a low of 108.24. The dollar quickly reversed its losses and reached a high of 109.52 as data showed that the US manufacturing sector expanded in September. The dollar moved lower against the yen after Japanese Prime Minister Shinzo Abe voiced concerns over the economic impact of recent weakness in the Japanese currency. The pair closed the week at 109.30

Housing market: New-home sales in the US surged in August to the highest level in more than six years, a sign that the housing recovery is making progress. Purchases of new houses jumped 18% to a 504,000 annualised pace.

However, purchases of previously owned US homes declined in August for the first time in five months as investors retreated from the market. Existing home sales dropped 1.8 percent to a 5.05 million annual pace, from a revised 5.14 million pace in July, as per the National Association of Realtors.

US durable goods:  Orders for long-lasting US manufactured goods in August posted their biggest drop on record as the prior boost from aircraft unwound, but a rebound in business spending plans pointed to underlying strength in the manufacturing sector. The Commerce Department added that items ranging from toasters to aircraft that are meant to last three years or more, dropped 18.2 percent, the largest decline since the series started in 1992. That partially reversed July’s aircraft-driven 22.5 percent surge. Excluding transportation, durable goods orders rose 0.7 percent after falling 0.5 percent in July. Non-defence capital goods orders excluding aircraft rose 0.6 percent. The so-called core capital goods orders fell by a revised 0.2 percent in July, which was previously reported as a 0.7 percent. Core capital goods shipments edged up 0.1 percent last month after July’s upwardly revised 1.9 percent increase. 

Initial jobless claims:  Applications for unemployment benefits in US increased less than forecast last week as an improving economy prompted employers to retain staff. First-time jobless claims climbed 12,000 to 293,000 in the week ended September 20, the Labour Department reported in Washington. 


Eurozone business activity has expanded at a slightly weaker pace than expected in September as firms cut prices for the 30th month in a row. The data will discourage the European Central Bank, which is struggling to spur growth and revive inflation entrenched way below its target. Markit’s Composite Flash Purchasing Managers’ Index, based on surveys of thousands of companies across the region and seen as a good indicator of growth, dipped to a nine-month low of 52.3, shy of expectations in a Reuters poll for no change from August’s 52.5.

Business confidence in Germany drops: German business confidence fell for a fifth month even after the European Central Bank stepped up plans to revive the faltering euro-area recovery. The IFO institute’s business climate index, based on a survey of 7,000 executives, dropped to 104.7 in September from 106.3 in August. 

United Kingdom

Britain’s public finances continued to deteriorate in August after a weak start to the financial year, posing a challenge for Chancellor George Osborne as next year’s national election approaches. The Office for National Statistics said public sector net borrowing, excluding state-controlled banks, totaled 11.6 billion pounds in August, up 6.1 percent from a year earlier. Public borrowing for the tax year to date, excluding banks, was £45.4bn. 


China industrial profit falls: Profits at industrial companies in China declined last month for the first time in two years in a sign that the slowdown has accelerated. Total profits of China’s industrial enterprises fell 0.6 percent from a year earlier in August, compared with July’s 13.5 percent increase. 

Kuroda’s inflation target remains distant: Consumer prices excluding fresh food rose 3.1 percent year-on-year in Japan, undershooting the median projection for a 3.2 percent.  The Bank of Japan is likely to maintain its strong commitment to achieve 2 percent inflation, and the current speed of the monetary base expansion (at JPY60-70tr a year) is likely to be maintained at least throughout 2015 in the monetary policy meeting at the end of October.  

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