Forex Weekly Overview: US crisis averted, Japan intervenes again

ForexNewsNow | Published on August 5, 2011 at 2:52 am

  • Sunday, July 31st: World breathes a sigh of relief

Last Sunday night, US President Barack Obama announced on television that a bipartisan agreement had been reached with leaders of the Senate and House of Representatives to raise the legal US debt limit by $2.1 – $2.4 trillion in order to avoid an impending US default.

Later in the week, the agreement was passed by both houses of Congress.

The agreement reassured the financial markets, but the spectacle of the negotiations in Washington in recent weeks underlined US shortcomings to keep its own house in order while risking another financial crisis that would have impacted not only the US economy but markets all over the world.

  • Wednesday, August 3rd: A positive signal in US employment

The release of the ADP National Employment Report turned out to be positive again with a figure of 114K when the forecast had been for 95K. 

The previous figure released on July 7th was 157K which was quite positive since the previous forecast was for 60K. 

Swiss National Bank

On Wednesday, the Swiss National Bank went ahead and dropped interest rates to as close to 0 as possible from 0.25% in an effort to rein in the franc after the currency’s increased strength vis-a-vis the US dollar.

  • Thursday, August 4th: Central Banks Decision Day

European Central Bank

In wake of the European Central Bank’s (ECB) widely expected decision to keep its interest rate unchanged at 1.5%, the euro barely moved. However, markets focused more on ECB President Jean-Claude Trichet’s press conference later in the day, which caused the euro to weaken across the board and plummet from 1.4230 to 1.4151 against the greenback.

Trichet said that monetary policy would remain accommodative and announced that the central bank would provide extra liquidity for 6 months. The statement lowered the expecations for a rate hike in the next meeting. 

Bank of Japan

Also on Thursday, after several days of hesitation, the Japanese government intervened in the currency market in order to weaken the yen, which was approaching its highest level against the dollar since 1945 and threatening the economic recovery following the March 11th earthquake. 

Following the intervention, the dollar gained ground against the yen on Thursday, trading at 79.89 as of around 8:35 A.M., GMT.

The last government intervention occurred back in March 18th, but on that occasion it was coordinated with the G7 in wake of the massive earthquake that had struck the island nation.

Shortly afterward, the Bank of Japan (BoJ) announced a “reinforcement of its monetary easing plan” by increasing the amount of government bonds and other assets in order to fight against the negative effects associated with the yen’s rise.

Like the ECB, the BOJ also decided to keep its key lending rate unchanged in the range of 0.0% to 0.1%. 

Bank of England

The Bank of England’s Monetary Policy Committee voted on Thursday to maintain the official Bank Rate paid on commercial bank reserves at 0.5%. The Bank kept the rate unchanged for the 30th month. The Committee also voted to maintain the stock of asset purchases financed by the issuance of central bank reserves at £200 billion.

The Pound barely reacted to the BoE announcement, rising only 20 pips after the bank decided to keep its monetary policy unchanged as expected. 

  • Friday, August 4: Nonfarm payrolls release day

Today, the US Bureau of Labor Statistics is set to release the Nonfarm Payrolls for July at 12:30 GMT.

The ADP Employment Report is usually a good indicator of the NFP so the fact that the ADP report came out above predictions may be positive news for the NFPs.

The previous Nonfarm Payrolls figure released on July 8th was 18K – which was very negative since analysts had forecasted 89K – and had a very strong impact on the EUR/USD and GBP/USD.

According to Natixis, the forecast this month is for a figure of 70K, while Forexpros expects a figure rather around 95K.

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