Currency Briefing: Euro falls to five-week lows against the dollar

on Sep 2, 2013

The greenback ended last week broadly higher against its major peers on Friday, but was lower against the yen as the prospects for U.S. military-led attacks against Syria reinforced demand for save haven currencies.

Concerns over a possible U.S. military intervention escalated after U.S. secretary of State John Kerry said Friday that the U.S. would punish Syrian President Bashar al-Assad for “brutal and flagrant” chemical weapons used to kill more than 1,400 people in Damascus on Aug 21.
The euro came under pressure after official data on Friday showed the number of unemployed people in the euro zone fell by 15,000 in July, but the unemployment rate remained stable at the all-time record high of 12.1 per cent since Eurostat started to report the unemployment rate in the euro area back in 1995. The traditional safe haven JPY built up against the dollar and the euro on Friday, with USDJPY falling as low as 97.87, before settling back at 98.16.

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In the U.S., data on Friday was disappointing, showing that U.S. Consumer Sentiment was lower in August, retreating back from July`s six-year high. The final reading of the University of Michigan`s Consumer Sentiment Index slid to 82.1 from a final reading of 85.1 in July.
The Commerce Department announced GDP expanded at an annual rate of 2.5 per cent in the 2Q 2013, above expectations for growth of 2.2 per cent and up from a preliminary estimation of 1.7 per cent. The positive data supported the opinion that the Federal Reserve could start tapering the stimulus measures as soon as September.

In the week ahead, markets in the U.S. are to stay closed on Monday for the Labor Day holiday. Investors will be carefully watching Friday`s key U.S. August nonfarm payrolls report, in an environment of continuing speculation over when the Fed will start to decrease its monetary easing policy. Sentiment on the single currency is likely to remain fragile ahead of Thursday`s ECB policy meeting. Interest rate decisions by the Bank of Japan, the Bank of England, the Reserve Bank of Australia and the Bank of Canada will also be emphasized.

**Markets in the U.S. and Canada are closed on Monday, but the following indicators and events are likely to affect the markets:**
France, Germany, Eurozone and U.K. are all to produce data on manufacturing activity in August, a leading economic indicator, while Switzerland is to release its SMVE PMI. Eurozone business expanded for the first time in 18 month in July, suggesting the economy was slowly staring to stabilize. Markit` s euro zone Composite Purchasing Managers Index rose to 50.5 in July from 48.7 the prior month and is now anticipated to show statistics above the 50 threshold as well.

In view of the U.S. President`s announcement on Saturday that he has decided to order a limited military strike against Syria only once the mission is approved by the Congress which returns on Sep 9 , markets may be even more at ease due to this postponement and the probability Congress may disagree. However, the delay also could provide time to collect international support and to bolster a military alliance with France, which has signaled it was willing to join Mr. Obama`s plans.


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