The USD is having a very difficult start to the year after weakening by around 10% against a basket of major currencies last year. Economic outlook in other parts of the world, particularly in Europe, has improved, leading to the USD losing its safe haven status.
USD fell sharply last week and posted its fourth consecutive decline against major world currencies. Last week’s fall had nothing to do with Fed comments or U.S. data but was largely attributed to the comments from the European Central Bank, Bank of Japan and China. Not all of these developments turned into policy action but they all hints toward expectations that easy money will start to disappear in 2018.
EUR hit a 3-year high level against USD and GBP an 18 months high. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.06% on a week on week basis and is at a level of 90.97.
Euro appreciated by 1.44% against the USD. The gain was sparked by unexpected hawkishness from the ECB. According to the minutes from their December meeting, the central bank saw “some comfort” in wage dynamics and would consider a gradual shift in guidance starting “early 2018” if reflation continues.
GBP rose to its strongest level since June on the back of USD weakness and the prospect of a soft Brexit. On Friday, there were reports that the Spanish and Dutch support a soft Brexit that keeps Britain closely tied with the rest of the region.
The sharp gain in Yen also weighed heavily on the USD last week. Japanese Yen appreciated by 1.79% against the USD after the Bank of Japan trimmed its purchases of long-dated government bonds in market operations, stoking speculation that the central bank could start to wind down its huge stimulus policy this year.
USD came under additional pressure after a report published by Bloomberg that showed that officials are reviewing China’s foreign-exchange holdings and have recommended slowing or halting purchases of U.S. Treasuries. The report sent U.S. 10-year Treasury yields to 10-month highs. However, on Thursday China’s regulator dismissed the report boosting the USD, following its biggest one-day fall in a month.
U.S. Commerce Department reported that retail sales rose 0.4% in the month of December which was largely in line with the expectations. Core retail sales, increased by 0.4%, also in line with expectations.
A separate report showed that that the U.S. consumer price index rose 0.1% in the month of December against the expectation for a 0.2% increase. Year-over-year, consumer prices increased 2.1% last month. Core CPI, rose 0.3% last month, above expectations for a 0.2% gain.
U.S. Labour Department reported that its producer price index slipped 0.1% last month, the first decline since August 2016.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 5th January rose by 11,000 to 261,000 against the expectations of a decline of 4,000 to 246,000.
Asian currencies were largely up last week against the USD. Australian Dollar rose by 0.67%. New Zealand Dollar appreciated by 0.96%. Japanese Yen appreciated by 1.79% against the USD and appreciated by 0.72% against the Euro. South Korean Won depreciated by 0.21%, Philippines Peso depreciated by 0.96%, Indonesian Rupiah appreciated by 0.47%, Indian Rupee depreciated by 0.42% against the USD and depreciated by 1.04% against the Euro, Chinese Yuan appreciated by 0.30%, Malaysian Ringgit appreciated by 0.64% and Thai Baht appreciated by 0.8%.