The President Barack Obama authorized limited air strikes to suppress Islamic militants in northern Iraq which led to commodity and EM currencies drop in stock markets, but to the first-rate government bonds increase, as well as the oil price jump. As many expected, the ECB announced that it leaves its main refinancing rate at 0.15%. In June, the bank cut rates to a record low rate for the first time and lowered the rate on deposits to a negative value, in an attempt to prevent the growing deflationary pressure in the region. The recent data showed that the annual inflation rate in the euro area slowed in July to 0.4% from 0.5% in June, adding pressure on the bank. The concerns over the economic sanctions impact against Russia also undermined investor sentiment.
The euro fell slightly against the other major currencies amid the data that had shown that July euro area consumer price inflation had slowed down even more. The annual inflation rate was 0.4% which indicates the ECB monetary policy further easing possibility.The pound fell to a fresh half month low against the dollar since optimistic U.S. economic growth data that continues to support the dollar demand, but the next Fed policy statement limits the growth. It is difficult to determine the USD/JPY growth reason amid the American stock market collapse. Against this backdrop the Japanese stock market fell seriously only on Friday (Nikkei225 -0,33%) and also the yen was supported by the American government bond yield growth (weekly 10-year-old from 2.44% to 2.57%).
The U.S. Labor Department reported the fall of the initial jobless claims by 19 thousands to more than eight year minimum of 284 thousand after 303 thousand the previous week. The U.S. secondary housing market sales rose in June for the third month in a row indicating its growth after months of a decrease. The consumer confidence in the 18 EU countries weakens for the second month in a row. This suggests that the new measures to stimulate the economy, previously announced by the European Central Bank failed to convince the households that the economy is recovering.
The dollar has noticeable strengthen after the Federal Reserve Chairman Janet Yellen said earlier in the week that the interest rates may rise sooner than expected, if the economic recovery will continue recovering. Nevertheless, the Fed chief also said that if the recovery failed, then the monetary policy would remain accommodative.
The Fed meeting participants discussed the expected monetary policy and the normalization tools. The published reports did not show new information about the date when the central bank is going to raise the interest rates. The new indication was the bond buying program to be completed after the October meeting. The Fed acknowledged some improvement in the economic activity in the last three months after the winter slowdown in the 1st quarter.
The Germany unemployed number increased by 9 million in June versus a decrease expectations. The unemployed growth continues for the second consecutive month. The German unemployment remained unchanged at 6.7%. At the same time, data on unemployment in the eurozone went better than expected. The Eurozone unemployment rate remained unchanged in May from a revised down April value of 11.6%, while it was expected to grow to 11.7%. The unemployment rate in Italy in May rose to 12.6% from 12.5% in April, in line with the expectations.
The Eurozone Consumer confidence fell in June for the first time after three months of a growth. The preliminary index of consumer confidence fell to -7.4 compared with 7.1 in May, against expectations of its growth. Last Friday Mersch from ECB said that the Eurozone was still not out of the economic crisis, in spite of the gradual progress in recovery.