The dollar has weakened against its major European competitors on Friday, but has gained ground in comparison to the Japanese Yen. There has been a slew of U.S. economic data released this morning, but the driving force behind the move is the third round of quantitative easing, or QE3, announced Thursday afternoon by the Federal Reserve.
The Federal Reserve took drastic new steps to stimulate the sluggish U.S. economy on Thursday, offering to buy $40 billion of agency mortgage-backed securities each month, starting Friday.
In addition to embarking on a third round of quantitative easing, the Fed also extended its vow to keep interest rates at rock-bottom rates to mid-2015. Policy makers also decided to keep in place its Operation Twist program swapping short-term bonds for longer-term assets.
The Fed also revised upward its projections for economic growth in 2013, suggesting an expectation that the move announced Thursday, in combination with policy actions from Congress, would further boost the economy.
The new projections forecast 2.5 to 3.0 percent annual GDP growth for the year, up from 2.2 to 2.8 percent growth predicted in June. The upper range of expectations for growth in 2014 was also revised up from 3.5 percent to 3.8 percent.
The European Central Bank's bond-buying plan has lifted confidence in euro, ECB chief told German daily Sueddeutsche Zeitung. President Mario Draghi said it has already shown positive results. Fund managers are bringing back their money into Europe, which is good for the Eurozone economy.
The International Monetary Fund and the European Central Bank have denied a newspaper report that suggested they are in talks over a EUR 300 billion bailout for Spain.
Friday, Dutch daily Her Financieele Dagblad reported without naming any sources that the two institutions were in deep negotiations regarding such a deal. The rescue would allow the ECB to buy Spanish bonds when the country's borrowings costs surge.
The dollar has extended its recent losses versus the Euro to a fourth consecutive session on Friday, reaching a 4-month low of $1.3168.
Eurozone inflation increased as initially estimated to 2.6 percent in August, final data issued by Eurostat showed Friday. The rate rose from 2.4 percent in July.
The number of persons employed remained stable in the euro area during the second quarter, after falling 0.3 percent sequentially in the prior quarter, Eurostat reported Friday.
The greenback has been on a downward trend in comparison to the pound sterling since early August. During that time, the U.S. currency has fallen from around $1.5500 to 4 1/2 month low of $1.6255 on Friday.
British construction output decreased notably from last year in July, data released by the Office for National Statistics showed Friday.
Production in the construction sector, on an unadjusted basis, plunged 10.1 percent year-on-year in July. There was a 14.3 percent fall in the volume of new work, and a 1.6 percent decline in repair and maintenance works.
Japan's Finance Minister Jun Azumi on Friday repeated his warning that the government may undertake decisive action to contain excessive gains in yen, which hit a seven-month high after the Federal Reserve's announcement of a new stimulus program.
Meanwhile, the Japanese government lowered its assessment of the economy for a second straight month, saying the recovery is "pausing" due to a slowdown in global economic activity.
The buck rebounded from a 7-month low of Y77.121 versus the Japanese Yen yesterday and has climbed to around Y78.255 on Friday.
Japan's industrial production declined 1 percent in July from a month ago, revised from the initial estimate of 1.2 percent fall, final data from the Ministry of Economy, Trade and Industry revealed Friday. On a yearly basis, industrial output fell 0.8 percent in July.
Consumer prices in the U.S. increased in line with economist estimates in the month of August, according to a report released by the Labor Department on Friday, with the price growth largely due to a substantial rebound by energy prices.
The Labor Department said its consumer price index rose by 0.6 percent in August after coming in flat in three of the four previous months. The increase in prices, which reflected the fastest rate of growth since June of 2009, matched the expectations of economists.
Fueled largely by strong sales at automotive retailers and gas stations, U.S. retail sales grew by slightly more than expected in the month of August, according to figures released Friday by the Commerce Department.
Commerce Department figures put the advance estimate of retail sales for August at a seasonally adjusted level of $406.7 billion, a 0.9 percent increase from revised July levels and the strongest monthly growth since February.
Although July retail sales growth was downwardly revised to 0.6 percent from the 0.8 percent growth initially reported, the August growth was nevertheless higher the 0.8 percent increase predicted by most economists.
With Hurricane Isaac restraining output in the Gulf Coast region, the Federal Reserve released a report on Friday showing a much steeper than expected drop in industrial production in the month of August.
The report showed that industrial production tumbled by 1.2 percent in August following a downwardly revised 0.5 percent increase in July. Economists had expected production to edge down by 0.1 percent compared to the 0.6 percent growth originally reported for the previous month.
Consumer sentiment in the U.S. has unexpectedly seen a substantial improvement in the month of September, according to a preliminary report released by Thomson Reuters and the University of Michigan on Friday.
The report showed that the consumer sentiment index jumped to 79.2 in September from the final August reading of 74.3. The increase came as a surprise to economists, who had expected the index to edge down to a reading of 73.5.
U.S. businesses built up their inventory stock notably more than expected in July, according to figures released Friday by the Commerce Department. Total manufacturers' and trade inventories were estimated at a seasonally adjusted level of $1.592 trillion, a 0.8 percent increase from June levels.
While most economists had expected inventories to increase faster than the 0.1 percent rate posted from May to June, most had expected a lower, 0.5 percent, increase for July.
by RTT Staff Writer
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