US markets are closed today for the Martin Luther King holiday, as President Obama’s inauguration captures global headlines. The main event of the day will be Mr. Obama’s speech to the American public outlining his goals for the next four years, his views on the fiscal cliff and debt ceiling and his attempts to pull together US lawmakers from both parties. The global economics calendar is thin today and there is not much expectations for the currency markets.
The US dollar started the week on a soft tone against a basket of currencies as the risk rally sparked by the unanimity of the ECB’s decision combined with positive comments from Mario Draghi, continued. Last week just about every Finance Minister and Central Banker was heard from, the outcome was that Mr. Draghi’s comments the prior week saying that he sees the EU beginning to recover in the second half of this year kept euro traders sentiment in a positive mode.
The greenback started to gain traction at mid-week as data released from the US manufacturing sector disappointed the market and pushed investors towards safer assets. However, better-than-expected employment and housing data in the US along-side falling borrowing costs in Spain fuelled the risk-on trade and sent investors chasing higher-yielding assets such as stocks and abandoning their safe-havens. Nonetheless, the move was limited by constant US debt concerns.
The euro reached a high of 1.3404 as the risk rally from the previous week continued. However, the single currency lost most of its gains after comments from EU Finance Minister Jean-Claude Juncker that the euro level is “dangerously high,” pushing the currency to the low of the week at 1.3257. The currency gained dramatically on Thursday as positive figures from the US and China pushed investors to riskier assets. The Euro closed the week at 1.3321.
The GBP lost ground throughout the week, as sentiments on the economy remained vulnerable after a recent series of weak economic data, including a contraction in the services sector in December that fuelled concerns over a triple-dip recession. The sterling pound started the week at 1.6132 and then reached a high of 1.6155 but quickly lost its gains. The pound broke a number of key support levels to reach a low of 1.5854, and closed the week at 1.5870. An all-important speech by Prime Minister David Cameron on the future relationship between the UK and the Eurozone was postponed due to the terrorist situation in Algeria.
The JPY continued to tumble across the board, as investors anticipate aggressive bond purchasing programs to be added to match the expected target of two percent on the Bank of Japan meeting which starts later today. The yen gained some traction amid comments from the Japanese finance minister that a weaker yen would hurt the economy. On Friday, the yen dropped versus the US dollar to reach 90.21 amid news that the BoJ will engage in an unlimited bond buying programme, an effort to push inflation to two percent, its highly anticipated target rate. The yen gained some footing as concerns over the US debt ceiling pushed the currency to 89.70 levels. The Japanese yen closed the week at 90.10. The JPY climbed a bit this morning as traders booked profits and pushed the JPY above the 89.00 price level.