Traders will have a busy week, with the nonfarm payroll report due on Friday a day after the dual bank meetings of the Bank of England and the European Central Bank. As the month of January closed the Federal Reserve did as expected, and reduced their monthly asset purchases. The FOMC announced on Jan. 29 that it will trim its monthly bond buying by $10 billion to $65 billion, sticking to its plan for a gradual withdrawal from departing Chairman Ben S. Bernanke’s unprecedented easing policy. It has undertaken three rounds of bond buying since 2008 under the quantitative-easing stimulus strategy, swelling its balance sheet to a record $4.1 trillion. The central bank had been forecast to continue reducing purchases by $10 billion at this meeting and each one following to end the stimulus program this year, according to analysts in a Jan. 10 Bloomberg News survey. As the month ended the US dollar began to rise trading at 81.40 to start off the new week gaining 4 points in the Asian session. Chinese markets are closed for the lunar holiday so trading remains light.
The euro declined to begin the week trading at 1.3485 as the dollar gained strength and the pound continues its slide to trade at 1.6427. The ECB and the BoE are expected to keep rates and policy on hold. The latest eurozone unemployment and inflation data maintained the pressure on the ECB to do more to ward off deflation risks, perhaps as soon as Thursdays meeting. The dollar picked up speed against the euro on Friday after fears of deflation in the eurozone rose following a report showing slower price gains. Eurostat reported inflation in the euro area, slowed to 0.7 per cent in January from 0.8 per cent in December.
In the pacific theater, the Australia dollar and its cousin the kiwi are both trading on a positive note. The Aussie is hold close to its open but is up a pip or two at 0.8754 while the NZD gained 26 points to trade at 0.8114 recovering from its overreaction to comments from central bank Chief Wheeler who held rates surprising the markets and stated that the kiwi remained overvalued. The Aussie is paying close attention to the RBA meeting tomorrow.
Emerging-market currencies continued to tumble initially spurred by anti-government protests from Ukraine to Thailand and deepened by the Jan. 23 devaluation of Argentina’s peso, which dented confidence throughout Latin America. The peso fell 13 percent that day and 19 percent for the month. The possibility of Federal Reserve cutbacks continues to pressure the currencies. Traders moved into risk off mode late in the week pushing the Japanese yen to recent highs against the US dollar and the euro. This morning the Japanese yen eased a bit to trade at 102.37 against the dollar with the USD gaining 35 points and against the euro the pair gained 29 points to trade at 138.05 both remain well below their recent trading ranges.