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Currencies Weekly Performance Snapshot
Research Analyst (Commodity) - Reena Walia Nair/Naser Parkar
The last week was an eventful for the currency segment as huge
movements were seen across the major currencies traded
globally. The US dollar declined sharply, especially against the
Euro and the British pound. The US Dollar Index (DX) - tracking
its performance against a basket of six major currencies,
declined more than 2 percent to close at 79.07 on Friday.
Despite some positive economic updates released from US last
week, the Beige Book stated that poor employment scenario
continues to remain a major concern. The US Federal Reserve
chairman, Ben Bernanke in his speech also reiterated that it
would take another 4 to 5 years for employment to get back to
normal levels. But, he said that economic recovery will boost in
the year 2011.
India's WPI inflation rises to 8.43 percent y-o-y in December
2010: India's WPI inflation increased 8.43% y-o-y in December
as against 7.48% in November. Markets were expecting the
headline inflation to increase 8.35% in December. On the other
hand, industrial production increased 2.7 percent y-o-y in
November as against market expectations of 6.6 percent. In
October, industrial production had increased by 10.8 percent
in Asia's third largest economy. The Indian equities declined
sharply for a second consecutive week on rising inflation and
decrease in industrial production. Nifty declined around 4
percent w-o-w and closed at its four-month low of 5,654 on
Friday.
Euro gains more than 3 percent on successful bond auctions:
The Euro turned out to be the best performer of the week as the
currency gained more than 3 percent against the US dollar. In
the Euro zone bond auctions last week, Portugal sold around
1.5 bn of Euros whereas Spain sold more than 2 bn Euro bonds.
Markets reacted positively to this and the Euro currency made
spectacular gains. But, economic data released from the Euro
zone last week was not so favorable. Euro zone's trade balance
recorded a deficit of 1.9 billion Euros in November, as against
expectations of a surplus of the same amount.
Fundamental and Technical Outlook: In this week, the Euro
zone financial ministers are expected to meet to discuss on
increasing the financial stability amount announced in May
2010. Apart from that, GDP figures and other economic data
from China will also be the highlight. The world's fastest growing
economy is constantly trying to rein in the rising inflation by
constantly raising interest rates. We expect broader markets to
be volatile in this week taking cues from Chinese data and
meeting of Euro zone ministers. In the domestic markets, too,
worries regarding inflation and expected rise in interest rates
by the Reserve Bank of India will continue to lead to negativity
in the financial markets and this will lead to depreciation in the
Indian Rupee.
UK's Producer Price Index (PPI) increased 3.4 percent in
December: Rise in UK's PPI has increased expectations of a
central bank rate hike before June 2011. The BOE left interest
rates unchanged in its policy review meeting last week, but
there are hopes of increase in the same on the back of higher
inflation. The British pound gained more than 2 percent last
week on hopes of rise in interest rates in the first half of 2011.
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