NBK Weekly Money Markets Report dated 10-01-2010

United States
Greenback Slowly Gaining
The US Dollar started the new year on a firm note against the majors, with a slightly positive performance recorded for the greenback last week. The sentiment towards the American currency has been tilting to the positive side since the end of 2009, and it seems the trend is still unchanged in 2010. The foreign exchange markets were rather quiet last week, with no major moves nor a trend change noticeable among the major currencies. The Sterling Pound had a slightly negative performance, even though the start of the week was showing the opposite. After opening the week at 1.6151 and reaching 1.6241 on Monday, the Sterling lost its momentum and weakened to a low of 1.5897, and ended the week at 1.6023. On the other hand, the Euro range traded last week between a high of 1.4484 and a low of 1.4258, before ending the week at 1.4410. The US Dollar edged down from a fourth-month high against the Japanese Yen early last week, weakening to a low of 91.26. However, the greenback regained its momentum and the Yen weakened to 93.77, before closing at 92.66. The Swiss Franc traded in a narrow range last week, between a low of 1.0243 and a high of 1.0420, before closing at 1.0257.
FOMC meeting minutes
The minutes of the last FOMC meeting were released, showing projections of the Federal Reserve governors, along with banks’ presidents, over the future outlook for this year and the upcoming one. The Federal Reserve is still focusing on economic growth for the world’s leading economy, and trying to minimize the effect of the challenges that currently pose a threat to economical recovery, such as unemployment and inflation, along with other major concerns about the performance of companies, especially financial institutions and the effect of tight credit conditions on markets. Signs for improvement have been noted throughout the statement, and the FOMC sees gradual improvement and moderate growth along with subdued inflationary risks over this year. The minutes also showed that unemployment will remain relatively high throughout the upcoming period, and that the economic recovery is not strong enough to life interest rate anytime soon.
Economic Indicators
Service industries in the United States barely expanded in December, underscoring the Federal Reserve forecasts that the economic recovery will be slow to develop. The Institute of Supply Management’s (ISM) index of non-manufacturing businesses, which make up almost 90% of the economy, rose from 48.7 to 50.1. On the other hand, the ISM said the US manufacturing sector expanded in December for the fifth straight month, showing further evidence that the recession is receding. The ISM Manufacturing index rose to 55.9 in December, from an earlier 53.6 in November. It is the highest figure in nearly four years and topped expectations of 54.2.
Employment Report
U.S. employers unexpectedly cut 85,000 jobs in December, cooling optimism on the labor market’s recovery  and keeping pressure on President Barack Obama to find ways to spur job growth. The headline number is worse-than-expected and this is more of a pause rather than a reversal in the outlook for the job situation. The unemployment rate was still unchanged at 10.0% in December.
Europe
Flattish Week for the Euro
The Euro had a flattish performance last week against the US Dollar. The 16-nation currency range traded between a high of 1.4484 reached on Tuesday, and a low of 1.4258. However, the Euro failed to break either levels last week due to a quiet week and a lack of market moving indicators and events. The currency ended the week at 1.44410 on Friday.
Purchasing Managers Index
Both manufacturing and services sectors in the Euro Zone are still expanding, and the pace of expansion is also picking up. The Purchasing Managers Index (PMI) for both industries is still above the 50 level and showed an improvement from earlier recorded figures. The PMI Manufacturing rose from 51.2 to 51.6, and the PMI Services rose from 53.0 to 53.6. A composite of both industries had a similar performance, whereby it rose from 53.7 to 54.2. This figure represents a level not seen since October 2007.
Employment Situation in the Euro Zone
Official figures from the Euro Zone showed that the unemployment in the 16-country region rose to 10.0% in November, for the first time since the single currency has been introduced at the start of 1999. It is worth noting that Spain has the highest unemployment rate at 19.4%, and the Netherlands the lowest at 3.9%.
The jobless count declined by a tiny 3,000 workers last month in Germany, reaching 3.42 million. This is the sixth consecutive monthly decline for the German unemployment change, keeping the unemployment rate unchanged at the prevailing 8.1%.
United Kingdom
Weaker Pound over the Week
The Sterling Pound had a slightly negative performance last week, affected mainly by the Bank of England’s meeting and the decision to keep interest rates and the asset purchase program unchanged, along with the job report coming out of the United States. The Pound tried to start the week strongly, moving from 1.6150 to a high of 1.6240 on Monday, but failed to break that level. It weakened afterwards throughout the week, reaching a low of 1.5897 and closing at 1.6023 on Friday.
Good Economic Figures
Like the case in the United States and the Euro Zone, both manufacturing and services sectors are showing an acceleration in the pace of expansion, as shown by the PMI indices. The PMI Manufacturing rose 2.3 points, reaching 54.1 in December, and the PMI Services rose slightly from 56.6 to 56.8.
On the housing side, house Prices in the United Kingdom rose for a sixth consecutive month in December, increasing by 1.0%, and bringing the total rise since April’s low to 9.4%.
BoE Meeting: Interest Rate and Asset Purchase Program Untouched
In a widely expected move, the Bank of England kept the scale of its asset purchase program unchanged at GBP 200 billion, and left its key interest rate unchanged at 0.50%. Policymakers had indicated that they were likely to stay on hold at least until February, when they will get new growth and inflation figures, and the scheduled quantitative easing program runs out. The UK economy is showing some signs of revival, and most analysts expect no further expansions of the expiring asset purchase program – which was expanded by GBP 25 billion in November – meaning the scheme will end next month. It is likely to be an extended period before the MPC feels confident enough about growth and starts raising interest rates.
Global
Oil Jumps to 14-Month High of $83.20 a Barrel
Crude oil rose above $83 a barrel, the highest level since October 2008. This surge in energy prices was mainly driven by the cold wave that is hitting countries and capitals worldwide, boosting the demand for heating fuel, and thus pushing oil prices to new highs. One other cause of the rise in prices was the reported conflict between Russia and Belarus, whereby news suggested that Russia halted oil supplies to Belarusian refineries.
Kuwait
Dinar at 0.28670
The USDKWD opened at 0.28670 on Sunday morning.