On Tuesday European finance ministers have approved Latvia's accession to the Eurozone, suggesting it will become the 18th member on January 2014. Finance ministers also stressed out that it can be difficult to enlarge the Eurozone, while it is in the longest-ever recession and still struggling to support cash-strapped members, such as Greece and Portugal. EU ministers have also approved the exchange rate at 0.702804 lats to one Euro. A day later, the S&P rating agency downgraded Italy's credit rating, due to the continued weakness of the Italian economy. The Italian credit rating was cut to BBB from BBB+, as the Eurozone third largest economy has been in recession since the middle of 2011, while the unemployment rate is still running above 12%. S&P also said it expects the economy to contract by 1.9% this year, much worse than it expected earlier.
Also Wednesday Chairman of the Federal Reserve added turbulence into markets, saying the central bank will likely maintain accommodation for the foreseeable future, even as about half of 19 policy makers insisted on halting $85 billion bond purchases by the year end, while others wanted to see a stable improvement in the labour market before any policy retreat. The debate highlighted Bernanke's challenge in confirming that, even after starting to scale back monthly bond buying, central bankers plan to keep unprecedented stimulus with a record-high balance sheet and near-zero target interest rate. Amid speculation for a weak greenback, investors rushed to buy EUR/USD pushing the pair 1.9% higher during the week to close at 1.30607 on Friday.
A series of negative data from Switzerland were unveiled last week, as data showed the unemployment rate in Switzerland remained unchanged last month, holding at the highest level since 2010, while sales at Swiss retailers fell sharply in May. According to the data from the State Secretariat for Economic Affairs, the overall seasonally adjusted jobless rate, remained at 3.2% in June, widely meeting analysts' expectations. At the same time, the unadjusted rate dropped to 2.9%, down from 3.0% a month earlier. As to the retail sales, they grew by real 1.8% in May from the prior year, following a 3.1% gain in the month earlier. Excluding volatile sales of fuel, retail turnover surged 2% annually, weaker than a 3.3% growth in the prior month.
This week the inflation data in several countries, including the U.S., Europe, the U.K., Canada and New Zealand, will be published. In addition to that on Wednesday, July 17, Ben S. Bernanke's testimony is scheduled, suggesting he can shake markets once again.