KUWAIT, July 10 (KUNA) -- Currency markets witnessed a tremendous amount of volatility during the past week as a result of Portugal's sovereign debt rating and the European Central Bank's (ECB) raising of the lending rate by 25 bps, the National Bank of Kuwait (NBK) said in its weekly economic report on Sunday.
The ECB surprised markets by suspending any considerations to what the ratings agencies say or will say regarding Portugal's sovereign debt rating, at the same time, ignoring any effect over the credibility of the Bank.
Despite the ADP employment showing an addition of 157,000 new jobs in June, US markets sold off heavily on Friday, disappointed by an extremely weak nonfarm payrolls and a rising unemployment rate.
After starting Monday at the highs, the euro sold off heavily to close the week down almost 2 pct at 1.4265. The Sterling pound range traded against the US Dollar, starting the week at 1.6074, reaching a high of 1.6141 and ending the week at 1.6060.
The Swiss Franc was the major outperformer between the majors, strengthening from 0.8520 to 0.8360 on Friday after the disappointing labor figures in the US. The Australian Dollar also outperformed the USD after the Reserve Bank of Australia maintained interest rates at 4.75 pct and the economy added 23,000 jobs in June. The AUD ended the week at 1.0755.
In the commodity complex, Gold regained its luster, closing the week at 1, 544 in anticipation of next week's European Banks stress test and Standard and Poors cutting Portugal sovereign bonds to junk status. Oil, on the other hand, suffered heavy losses on Friday after the disappointing job numbers. Crude oil closed the week at USD 96.20.
In an effort to boost property values and avoid additional foreclosures, the Obama administration started a new initiative last week that would require mortgage lenders to give some unemployed homeowners who have fallen behind in their payments up to a year before the banks can foreclose on their homes.
Service industries in the U.S., which account for about 90 pct of the economy, expanded at a slower pace in June. The Institute for Supply Management's (ISM) index of non-manufacturing businesses decreased from 54.6 in May to 53.3 in June, a drop slightly larger than expected, in a sign that the economy cooled at the end of the first half of 2011.
Businesses project the expansion will pick up through the rest of the year as gasoline prices provide relief for households and supply disruptions from Japan subside.
Employers in the US added jobs in June at the slowest pace in over nine months. Payrolls increased only by 18k, missing the 105k economists' expectation. The unemployment rate also unexpectedly climbed to 9.2 pct amid the weak data, to reach the highest level this year.
In Europe, despite growing concerns about further sovereign debt crises derailing growth in the Eurozone, the ECB raised the official interest rates during their meeting last week for the second time this year. The official rate now stands at 1.50 pct, up from 1.25 pct where it has been since April.
Part of the problem that Eurozone ministers have been trying to solve is how to share the burden of the Greek crisis with the private sector. The idea that had gained most traction was the French proposal, which allows Greece to roll over its debt held by French banks into longer-dated maturities.
The credit rating agency Moody's Investors Service downgraded the government debt of Portugal to junk status, saying it's another European nation that could require a bailout. Moody's said the motive behind the downgrade is the growing risk that Portugal will require another round of financing from its European neighbors, with funding from the private sector a pre-condition.
In a gesture to support Portuguese banks, the ECB announced following the downgrade that it would lower its collateral standards for Portuguese paper, enabling the nation's banks to borrow against their stocks of official debt. - Kuwait Times