USD continued to remain under pressure last week and posted its fifth consecutive week of decline. Many major currencies climbed to fresh multi-month and multi-year highs against the USD. The Australian dollar and British pound were the best performers, adding around 1% to their gains. The euro and Japanese yen lagged behind but still managed to post small gains. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.44% on a week on week basis and is at a level of 90.57. The decline in USD was largely attributed to the weak U.S. economic data released last week and concerns over a possible U.S. government shutdown.
USD started the week on a low note as it slipped to a fresh three-year low level on Monday as demand for the euro continued to be underpinned by speculation that the European Central Bank is preparing to scale back its massive stimulus program. Euro started its rally after the release of December ECB minutes, which showed that officials could consider a gradual shift in policy guidance from early 2018. Further, the euro received an additional boost after German Chancellor Angela Merkel moved closer to forming a coalition government, potentially removing an element of political risk for the euro zone.
Fresh political tensions in Washington surfaced after the comments by President Donald Trump on immigration dampened the prospects of a broad spending and immigration deal, raising the possibility of a government shutdown. Based on the White House’s press briefing on Friday, the Trump administration is bracing for a government shutdown. This would be the first government shutdown in 4 years. Despite repeated threats during the Obama administration, the last time the U.S. government was officially shut down was on October 2013, for 16 days.
On data front, the consumer confidence slipped to 94.4 in January from 95.9 against the expectation of 97 reading, U.S. housing starts and building permits fell and manufacturing activity in the NY and Philadelphia regions slowed down. However, the Federal Reserve still believes that 2018 will be a stronger year for the economy as Kaplan, who is not a voting member of the FOMC said the base case is for 3 hikes in 2018 while Mester, who is a FOMC voter, favours 3 to 4 hikes.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 13th January fell by 41,000 to 220,000 against the expectations of a decline of 11,000 to 250,000.
Asian currencies were largely mixed last week against the USD. Australian Dollar rose by 0.99%. New Zealand Dollar appreciated by 0.48%. Japanese Yen appreciated by 0.26% against the USD and depreciated by 0.30% against the Euro. South Korean Won depreciated by 0.09%, Philippines Peso depreciated by 0.72%, Indonesian Rupiah appreciated by 0.28%, Indian Rupee depreciated by 0.32% against the USD and depreciated by 1.48% against the Euro, Chinese Yuan appreciated by 1.01%, Malaysian Ringgit appreciated by 0.84% and Thai Baht appreciated by 0.29%.