U.S. and U.K. benchmark interest rates to remain unchanged

The highlights of the economic calendar during previous week were Fed’s, BoE’s and BoJ’s March meetings, the release of U.S. initial jobless claims and producer price inflation reports, as well as Greece’s return to financial markets.

Fed’s March Minutes

The Federal Reserve’s March meeting minutes released on April 9, 2014, reported that policymakers decided to keep the benchmark interest rate to near zero levels, until inflation moves higher. The board of governors unanimously agreed to set a threshold that would increase interest rates, once the unemployment rate reaches 6.5%, provided that figure is followed by a 2.5% inflation rate.

Currently, unemployment rate is at 6.7%, not far from the threshold set, though inflation rate remains well below 2.5%. The Fed’s decision to set a rate-increase threshold, left markets feeling that interest rates will remain low for some time to come, even after winding down the bond-buying programme.

U.S. Initial Jobless Claims and Producer Price Index

On Thursday, April 10, the U.S. Labor Department reported that the number of people filing for unemployment assistance in the week ending April 5, declined by 32,000 to 300,000, which is the lowest level since May, 2007. Previous week’s claims were revised up to 332,000. Economists had anticipated initial jobless claims to fell to 320,000. The four-week average of jobless claims declined to 316,250 from 321,000 the week before, the lowest since late September 2013.

Continuing jobless claims also dropped to 2.77 million, the lowest since January 2008. These figures reflect the fewest number of American citizens filing for unemployment benefit since before the last recession, indicating a progress in the labour market.

A day after, official data released by the Bureau of Labor Statistics reported that the Producer Price Index, which measures the change in selling prices, increased by 0.5% in March, following a 0.1% decline in February. The median estimate was calling for a 0.1% rise. Core producer price inflation, excluding energy, trade and food, rose 0.6% in March, against the forecasts anticipating a 0.2% increase, following a 0.2% fall the previous month.

BoE’s March minutes

On Thursday,10, the Bank of England said that is keeping the benchmark interest rate at 0.50%, where it has been since March 2009, as officials try to measure the amount of spare capacity in the economy. The specific decision was broadly anticipated among economists. The BoE also stated that is maintaining the asset purchase programme at £375 billion.

The meeting took place amid signs that the country’s economic recovery is strengthening, following data published earlier on the week, showing that industrial production rose beyond economists’ expectations in February. The Monetary Policy Committee stated that it will not contemplate increasing borrowing costs at least until the unemployment rate drops to 7% - currently at 7.2%. It is anticipated that the BoE will rise its interest rate by 25 basis points by May 2015.

Greece back to markets

Meanwhile in the euro zone, Greece made a successful return to financial markets on Thursday, April 10, raising €3 billion in its first bond auction since 2010, when the country entered the bailout programme. Greece auctioned €3 billion of five-year benchmark bonds at a yield of 4.95%, with the orders exceeding €20 billion. Traders looked optimistically to Greece’s return to bond markets, as a further sign that euro zone’s economic recovery is gaining pace.

U.S. Dollar

Despite the upbeat official data on initial jobless claims on Thursday, 10, the numbers did little to boost the dollar. Traders continued to avoid the currency, following the Fed’s minutes indicating that an interest rate rise is unlikely to occur for some time. While on Friday, the greenback gained strength against other major currencies, as the release of better-than-expected inflation data supported demand for the currency. The U.S. dollar rose against the euro, with EUR/USD declining 0.15% to 1.3867.

Euro and Sterling

On Thursday, the euro found support from Greece’s successful return to bond markets, ending a four-year exile from them. During the U.S. trading session, the EUR/USD was up 0.27% at 1.3893. Elsewhere, EUR/USD hit 1.3875, the highest since March 24 and was last trading at 1.3869.

Following the release of BoE minutes to left the interest rate unchanged at 0.50%, the sterling lowered against the dollar on Thursday, with GBP/USD down 0.02% at 1.6790. The cable remained also slightly lower against the euro, with EUR/GBP gaining 0.21% to 0.8266. On Friday, the sterling followed the same course against the dollar, with GBP/USD dropping 0.34% to 1.6727.

Yen

The greenback was down against the yen on Thursday, 10, with USD/JPY declining 0.55% at 101.43. On Friday, however, the dollar traded higher against the yen, after the release of the Bank of Japan’s March minutes saying that BoJ will continue to seek quantitative and qualitative easing measures, thus fuelling concerns for implementation of additional stimulus measures in the near future. USD/JPY rose to 101.86 during Asian trade.

AUD/CAD/NZD

On Thursday, the dollar was mixed against its counterparts in Australia, Canada and New Zealand. AUD/USD traded up 0.37% at 0.9425, USD/CAD gained 0.39% at 1.0923, and NZD/USD fell 0.20% at 0.8697. The Aussie found support by official data released earlier reporting that the number of individuals employed in Australia rose by 18,100 in March, well above the forecasts for a 5,000 increase. The country’s unemployment rate dropped to 5.8% in March, from 6.1% in February.

On Friday, the U.S. dollar traded higher against all its cousins, with AUD/USD sliding 0.27% to 0.9389, NZD/USD falling 0.15% to 0.8667 and USD/CAD up 0.39% to 1.0977.

The U.S. Dollar Index tracking the performance of the dollar versus six other majors, dropped by 0.20% at 79.44 on Thursday, while gained 0.15% to 79.60 on Friday.

Gold

Gold prices gained more than 1% on Thursday, after the release of Fed’s minutes. Gold futures for June delivery rose 1.13% to $1.320.60 on the Comex division of the New York Mercantile Exchange, the highest since March 24, 2014. The precious metal remained supported on Friday, trading near three-week highs with gold futures for June delivery trading at $1,322.10 a troy ounce, up 0.12%.