stronger us dollar as ecb cuts benchmark rate
Last Updated : GMT 06:49:16
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Last Updated : GMT 06:49:16
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Stronger US dollar as ECB cuts benchmark rate

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Arab Today, arab today Stronger US dollar as ECB cuts benchmark rate

European Central Bank (ECB)
Kuwait - KUNA

The US economy has shown its resilience in times of distress, as the US dollar gained dramatically for the last couple of weeks against major counterparts, aided by strong data from the economy, the National Bank of Kuwait said in its weekly report.
The report added that the escalating geopolitical risks are taking their toll on the Euro and Sterling Pound.
"Pressured by worsening economic situations weighed on by the Ukrainian crisis, the European Central Bank surprised the markets by cutting the interest rate to a new record low of 0.05 percent, causing dramatic changes in FX and bond markets," reads the report.
It stated that the Euro started the week at 1.3132, range trading ahead of an anticipated announcement of the ECB. The single currency dropped slightly as political tensions escalate after a new proposition of new sanctions against Russia, falling to 1.3110. The Euro regained its losses, touching a high of 1.3160, after Russian President Vladimir Putin and his Ukrainian counterpart Petro Poroshenko agreed on steps toward a cease-fire in Ukraine's easternmost regions.
"The Euro then collapsed following the European Central Bank's interest rate cut, triggering a sell-off, as investors seek the safety of the greenback. The collapsed of the Euro was translated to a major gain of the US Dollar against all major currencies. The Euro continued to drop during the press conference, as the market reception of Draghi's statement was not absorbed easily. The Euro broke the 1.3000, a level last seen a year ago, touching a low of 1.2920. The single currency ended the week at 1.2956," the NBK said.
Meanwhile, the Sterling Pound opened at 1.6598, rising slightly to touch a high of 1.6644. The Pound then erased its gains, as the country's manufacturing slowed more than expected, sending fear that the British economy might still be fragile, falling to 1.6450.
Cable continued to fall against the US Dollar, after the ECB's decision to cut the benchmark interest rate, pushing the USD higher against the GBP. The Sterling Pound collapsed, touching a low of 1.6283, as the USD continued its momentum, and mixed economic UK data sent uncertainty in the market to spike. The Pound ended the week at 1.6326.
Data also showed that the Japanese Yen opened the week at 104.09, weakening massively during the week against a stronger US Dollar. "The Japanese Yen continued to drop against the USD amid speculation that Japan's Prime Minister, Shinzo Abe, will appoint an ally to head the ministry in charge of reforming the Government Pension Investment fund, the world's largest pool of retirement saving (USD 1.2 trillion). The Japanese Yen touched a high of 105.71, the weakest since October 2008, with the USD gaining dramatically against all currencies. The JPY regained some if its losses, ending the week at 105.07." The NBK report said that the number of Americans filing for unemployment benefits rose only slightly last week, as an improving economy encouraged business to keep staff to meet consumer demands. Jobless claims rose by 4,000 to 302,000, against a forecasted rise to 300,000. The total number of people on benefits rolls fell to the lowest level in 7-years.
"US companies employed fewer workers than expected in August; a sign that the recent momentum in the labor market might be cooling off. The ADP Non-Farm Payroll rose by 204,000, fewer than previously estimated. The figure came lower than the previous months' figure of 212,000, and lower than the forecasted 218,000. The ADP figure excludes the farming industry and government job," it added.
On the EU economy, the report said that the European Central Bank unexpectedly cut its benchmark interest rate to spur economic growth in the region, and hinder inflation.
"The ECB's 24-member governing council reduced its benchmark interest rates by 10 basis point, to 0.05 percent, while the deposit rate is now -0.2 percent, and the marginal lending facility at 0.3 percent. The rate cut came 3-months after a historic package of stimulus measures." It argued that the changes the ECB made come after GDP in the Euro area unexpectedly stagnated in the second quarter, as the biggest three economies failed to grow.
On the UK economy, the NBK disclosed that the manufacturing sector unexpectedly slowed more than forecasted last month.
"The Manufacturing Purchasing Managers' Index's (PMI) dropped significantly to 52.5 from 54.8, the lowest level since June 2013. The PMI fell below economists' expectation of 55.1. The weakness in the Euro area is taking its toll on the British economy, showing that the UK economy is not immune to the global market uncertainty and the impacts of rising geopolitical risks," it concluded.

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