Dollar Stopped Falling Before Non-Farm Payrolls

October 22, 2013

The US dollar almost didn’t change at the end of trades on Monday according to the dollar index before the publication of important labour market data for September on Tuesday which can turn out good as it will reflect the period before the government shutdown. The dollar lost almost all its slight growth after the release of housing market data which turned out a little worse than forecasted. The yen fell amid weak trade balance data of Japan.

Non-Farm Payrolls which must have been released on October 4 will be published this Tuesday. The U.S. employment rate is expected to have risen by 180 thousand in September against 169 thousand prior month – and unemployment rate remained unchanged at 7.3%. Employment and unemployment growth rate is paid special attention as the Federal Reserve announced unemployment rate one of the Forward Guidance for monetary policy.

The US Existing Home Sales data for September are slightly worse than expected. According to the NAR – home sales decreased to 5.29 million at an annual rate against the forecasted decline to 5.30 million. However, prior month data were considerably revised for the worse – from 5.48 million to 5.39 million. Home sales dropped after reaching its height for four years.

 

FOMC member Charles Evans made speech on Monday supporting the continuation of monetary stimulation and repeated that the central bank would need at least a few months more to watch labour market data before taking decision on QE tapering. Evans said that a number of good labour market reports are required as well as confirmation of economic growth strengthening and a few months to estimate the trend. He marked that the Fed wouldn’t be able to make the decision on QE tapering in December confidently – amid the expectations of reviving debates on the US budget issues in January-February.

According to the economists polled by Bloomberg the decision on QE tapering from $85 billion to $70 billion will be made at Fed meeting only on March 18-19, 2014. By July, 2014 the Fed will have decreased asset purchases to $25 billion a month and will finish it in October. Besides, fiscal crisis in the USA will lead to economic growth rate decline in the current quarter by 0.3%.

Finance Minister Jacob Lew urged the members of the Congress to do everything possible to avoid another government shutdown and “almost default” situation. Meanwhile, according to The Wall Street Journal, frightening prospects of further reductions in the U.S. defense spending in the current fiscal year that began October 1, could push the Republicans and Democrats to a more rapid and efficient budget deal. However, the negotiations will be complicated due to political struggle before the elections to the Congress 2014.

The yen dropped on Monday against all major currencies after the release of trade balance which deficit decreased less than expected. Trade deficit fell to 932.1 billion yen in September from 962.8 billion in August – while a decrease to 918.6 billion was expected. Exports growth slowed down in September to 11.5% at an annual rate from 14.6% prior month, the imports grew from 16% to 16.5%. It is the 15th month in a row when the trade balance runs with deficit and it is the longest period of deficit since 1979. Extra pressure on the yen was put by the speech of the Bank of Japan governor Haruhiko Kuroda who promised to continue a soft monetary policy to reach a stable inflation. The Bank of Japan raised economic estimate of all nine regions of the country on Monday.  

Germany Finance Ministry said on Monday that the country's economy will continue to grow in the second half of the year thanks to a strong industry, a large amount of investment and private consumption. Optimistic outlook marks a good momentum of Europe's largest economy, which grew by 0.7 % in the second quarter of this year. Last week the leading economic research institutes of the country reported that GDP growth this year will be 0.4 %, and next year it will increase to 1.8%. German government will publish a revised economic growth forecast on October 23.

According to analysts polled by Bloomberg, the chances of the euro to become an alternative to the dollar strengthened as the US budget crisis will probably occur every several months. On this background the situation in the euro-zone seems calm despite the problems of certain countries. This year the euro performs better among currencies of 10 developed countries. From the beginning of the year the euro rose by 5.8% to a basket of currencies of other nine developed countries, showing the best dynamics in the group while the dollar gained 1.5%. Before that the euro had been falling every year for four years: from 2009 to 2012 it dropped by 20%.

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