Dollar remains strong heading into holidays

KUWAIT: Last week, the US dollar remained on the top of the currencies pyramid on the back of good economic data, the support of future interest rate hikes in 2017 and expectations of the fiscal spending plans set by the president elect Donald Trump. The US economy released positive figures across all sectors especially the manufacturing and the real estate sectors which helped the dollar to rally against most major currencies. Additionally, fiscal policy implementations promised by President elect Trump and the Fed’s dot plot has dictated the markets’ outlook of a strong dollar.

Fed Chair Janet Yellen expressed her trust and optimism in the labor market in the US speaking at the University of Baltimore saying that the jobs market is the strongest it has been in nearly a decade. Yellen cited the unemployment rate of 4.6 percent - a prerecession low - and wage growth for younger workers. A report the Fed released earlier last week showed that young people were optimistic about their job prospects even though they faced higher unemployment rates than the rest of the population.

The dollar Index opened the week at 102.900 and reached a 14-year high of 103.650 amid upbeat US data as the housing market keeps flourishing whereas the annualized existing home sales increased to 5.61M for the month of November. Furthermore, the index continued the hawkish move following Fed Chair Janet Yellen’s positive comments on the labor market. The index closed the week at 102.920.

The Euro opened the week at 1.0442 and continued the free-fall following the previous week downward move. The currency reached a 13-year low of 1.0350 at the end of the week as a strong dollar rally continued. The euro ended the week at 1.0462.

In the UK, the pound sterling opened the week at 1.2491 and traded in a relatively tight range compared to the other major currencies. Cable retracted amid anticipation of the final GDP quarterly figures which came higher than expectations by 0.1 percent to 0.6 percent yet the currency ended the week at 1.2290.

In Japan, the Yen remained relatively flat after losing ground to the dollar for the past month. The economy in Japan has picked up in the third quarter of this year, yet the dollar’s bullish run overshadowed the expansion. Meanwhile, the BOJ kept unchanged its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent. The currency closed the week at 117.31.

On the commodities side, oil prices remain in an uptrend above the $54 per barrel level after OPEC’s agreement on production cuts. Brent crude oil futures fell 25 cents to $54.80 per barrel while West Texas futures were down 20 cents to $52.10 a barrel. On the other hand, gold prices continue to remain below 1,140 levels with booming equity markets around the globe.

Existing-home sales

Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and coops, rose 0.7 percent to a seasonally adjusted annual rate of 5.61 million in November from a downwardly revised 5.57 million in October. November’s sales pace is now the highest since February 2007 (5.79 million) and is 15.4 percent higher than a year ago (4.86 million).

The healthiest job market since the Great Recession and the anticipation of some buyers to close on a home before mortgage rates accurately rose from their historically low level have combined to drive sales higher in recent months.

Unemployment claims

The number of new claims for state unemployment benefits dropped 4K to a seasonally adjusted 254K for the week ended December 10th. It was the 93rd straight week that claims were below 300K, indicating a healthy labor market. That is the longest stretch since 1970, when the labor market was much smaller. The four-week moving average of claims rose 5,250 to 257,750 last week.

The US economy grew faster than initially thought in the third quarter, notching its best performance in two years, amid solid consumer spending and a jump in soybean exports. Gross domestic product increased at a 3.5 percent annual rate instead of the previously reported 3.2 percent pace, the Commerce Department said in its third GDP estimate on Thursday.

Growth was the strongest since the third quarter of 2014 and followed the second quarter’s anemic 1.4 percent pace. Output was also lifted by upward revisions to business investment in structures and intellectual property products, underscoring the economy’s solid fundamentals, which contributed to the Federal Reserve raising interest rates last week. Economists polled had expected that third-quarter GDP growth would be revised up to a 3.3 percent rate.

Core durable goods

Orders for US business equipment climbed more than forecast in November, a sign corporate investment is starting to pick up. Bookings for non-defense capital goods excluding aircraft rose 0.9 percent, the most since August, after a 0.2 percent gain a month earlier. The median forecast in a survey called for a 0.4 percent increase. Demand for all durables fell 4.6 percent on a slump in orders for planes. Increased business sentiment about the economy following the presidential election has the potential to boost sales of productivityenhancing equipment. Leaner inventories, resilient household demand and the longerterm prospects of more infrastructure spending may help boost durable-goods orders even as a soaring dollar risks slowing exports.

German IFO

The German IFO index strengthened to 111.0 for December from 110.4 the previous month, which was above the expected reading of 110.7 and the strongest reading since February 2014. The current conditions index rose to 116.6 from 115.6, also above expectations and the highest level since February 2012, while the expectations index only increased marginally to 105.6 from 105.5. There was an increase in the trade and industry sector to 14.8 from 13.7, the strongest reading of 2016 as manufacturing confidence also improved with companies expecting output to strengthen over the next few months. The construction sector continued to strengthen with a fresh post-unification record high as low interest rates provided robust support. Confidence in the retail sector was unchanged, but the wholesale sector strengthened further to 17.8 from 15.1, which was the strongest reading for close to three years.

UK GDP

UK GDP in volume terms was estimated to have increased by 0.6 percent in Q3 2016, revised up 0.1 percentage points from the second estimate of GDP published on 26 November 2016, due to upward revisions from the output of the business services and finance industries. This is the 15th consecutive quarter of positive growth since Q1 2013. Revisions to GDP quarterly volume growths are small compared with the previously published estimate. There are no revisions to any quarters in 2015. There are small revisions to the quarters of 2016; both Q1 2016 and Q2 2016 have been revised down by 0.1 percentage points, and Q3 2016 has been revised up by 0.1 percentage points.

Optimistic BOJ

The BOJ kept the monetary policy steady reinforcing the market’s expectations that the future policy could be an increase, not a cut, in interest rates. “Japan’s economy continues to recover moderately as a trend,” the BOJ said in a statement announcing the policy decision. The central bank also offered a brighter view on exports and output and iterated that both were picking up. As widely expected, the BOJ kept unchanged its pledge to guide short-term rates at minus 0.1 percent and the 10-year government bond yield around zero percent.

Chinese money

In China money markets are facing a rough transition into 2017 as heavy capital outflows and disruptive bond defaults are creating irregular cash shortages. China’s economy remains vulnerable to a strong dollar, after the US Federal Reserve raised interest rates and projected more rises next year. In summary, the market is short of money and people are rushing to sell everything to get liquidity, from money market funds to corporate bonds to treasuries.

Kuwait

Kuwaiti dinar at 0.30605 The USDKWD opened at 0.30605 yesterday morning.