Easy-Forex Weekly Outlook
The EUR/USDtumbled late in the trading day on Friday after touching above the 1.28 level to close the week at 1.2760 on comments from ECB bank members. The European Central Bank has recently taken additional easing steps to help reverse the region’s deflationary economic tendencies. These include cutting interest rates, extending low-cost loans to financial institutions in return for credit to companies, and purchasing corporate debt which, along with a weaker euro, should provide increased support to the beleaguered region. The ECB President also favors fiscal adjustments to complement monetary actions — structural economic and labour market reforms that would allow for the implementation of a more competitive tax regime and pave the way for increased job creation, and hinted that a broader bond-buying program could be in the cards if needed. Expectations that interest rates will continue to rise in response to the strengthening trend in U.S. output growth has put increased upward pressure on the U.S. dollar. So has the developing monetary policy differential between the leading U.S. economy and the lagging economies in the euro zone and Japan. Against a basket of international currencies, the U.S. dollar has strengthened by almost 7% since mid-year.
The AUD/USDremains weak as metals continue to weaken and the Chinese economy continues to stress investors. The Aussie ended at 0.8744. China’s growth performance continues to moderate in response to the ongoing consolidation in credit-intensive sectors, namely construction, with the softening in commodity demand and slumping prices taking a toll on resource suppliers around the world. Of the remaining BRIC nations, only India is exhibiting renewed output gains, a function of the renewed confidence in the country’s policymakers and increased industrial activity and exports.
The USD/JPYreversed course late on Friday to gain as the US dollar added momentum and traders moved away from safety. The JPY is trading at 106.89. Japan’s incipient recovery is petering out after the hefty consumption tax increase in the second quarter sharply curtailed domestic spending, thereby putting the emerging inflation uptick at risk. The Prime Minister has indicated that additional stimulus measures will be forthcoming though, with longer-term fiscal reforms slow to emerge, the pressure will increase on the Bank of Japan to add to its bond buying program. These developments will reinforce an even weaker yen. Top Federal Reserve officials, in turn, have started worrying about how this sagging growth and market volatility have boosted the greenback, and so the country’s export competitiveness. A strong currency also suppresses inflationary pressures, meaning the Fed can hold back further on tightening its monetary policy.