The USD closed down on Friday and stocks globally rose as speculation mounted that the Federal Reserve and the European Central Bank are preparing are set to introduce monetary easing tools into their ailing economies.
Rising yields in Spanish government debt markets meant that ECB President Mario Draghi had to publicly declare European monetary policy authorities will do their utmost to save the Eurozone. His comments, backed by both Merkel and Hollande was seen as a sign by markets that the ECB may start implementing bond purchases from banks at some point in the near future. The ECB has not partaken in serious sovereign bonds purchases since the Eurozone’s rescue facility; the EFSF, gained the legal right at the end of 2011 to buy bonds itself, The talk of monetary easing policies being actioned caused a spike in Euro stocks with Germany’s Dax finishing 1.60% higher, France’s CAC 40 finishing 2.28% higher, whilst the The EUR/USD ended 0.31% higher, trading at 1.2321.
Over in the US – the world’s largest economy saw the US economic growth slow in the second quarter to an annualized rate of 1.5%, as a softening job market prompted Americans to curb spending with consumer confidence in July dropping to the lowest this year. The US economy is still growing (the equivalent to 0.4% quarter on quarter) but only marginally and at nowhere near the mark required to make a significant impact in the high levels of American unemployment.
Separately, in its twice-yearly review, the White House revised down its forecast for growth in 2012 to 2.3% from 2.7%, and in 2013 to 2.7% from 3%. This prompted speculation that the Federal Reserve will stimulate the U.S. economy also through buying bonds from banks pumping liquidity into the economy, weakening paper currencies while sending stock prices higher. The Dow Jones Industrial Average ended up 1.46%, the S&P 500 index was up 1.91% while the Nasdaq Composite index was up 2.24%. The US Dollar index which measures the greenback against a basket of 6 weighted currencies ended Friday, down 0.27%, trading at 82.67.
This week, the highlight for traders is the release July’s jobs report in the US, with Fed Intervention only weeks away if particularly negative.
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