USD continues its broad weakness to post decline for the fifth consecutive week as stronger global growth makes U.S. assets less attractive especially during a time when investors are worried about trade wars and the U.S. fiscal situation. However, during last week it was the Bank of Japan’s inflation-language tweak, ECB president Mario Draghi statement, Treasury Secretary’s comment about the benefits of a weaker USD and softer U.S. data which has sent the USD tumbling lower.
Further, during the last week many major world currencies continue to trade at multi-month and multi-year highs against the USD. Euro appreciated by 1.68%, British Pound appreciated by 2.18%, and Japanese Yen appreciated by 202% against USD last week. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.63% on a week on week basis and is at a level of 89.10.
U.S. economy expanded at a slower-than-projected pace in the fourth quarter on drags from trade and inventories, offsetting strength in consumer spending and business investment that signals solid momentum for the economy. Gross domestic product rose at a 2.6% annualized rate after 3.2% in the prior period.
Bank of Japan made small tweak to its own tune on Tuesday post policy meeting. Instead of saying inflation expectations were weakening, they now feel that prices are skewed to the downside. With that in mind, they made no mention of the currency’s value, additional taper or rate hikes.
Treasury Secretary Munchkin on Tuesday described the USD weakness as “good for us as it relates to trade and opportunities,” which is a departure from the government’s traditional support for a strong USD.
However, at the end of the week the President Trump tried to walk back those comments by saying they were taken out of context and the U.S. supports a strong dollar policy and Bank of Japan Governor Kuroda did the same when he said in Davos that they did not revise inflation outlook.
As was widely expected the European Central Bank (ECB) left rates unchanged in its last policy meet, while ECB president Mario Draghi attempted to stifle growing expectations that the central bank is nearing a shift toward a more hawkish stance on monetary policy. Draghi confirmed that the Eurozone has shown robust economic expansion but warned that the recent surge in the euro was a source of uncertainty that could warrant further attention should the US continue to express support for a weak USD. Draghi also said that while strong momentum has underpinned confidence for faster inflation growth, he expected that inflation would likely hold at current levels in the months ahead, suggesting that recent investor expectations for a hawkish ECB may have been exaggerated.
U.S. Commerce Department on Thursday reported that new home sales declined 9.3% percent to 625,000 units last month against the expectation of a decline 7.9%, followed by gain of 15% in November.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 20th January rose by 17,000 to 233,000 against the expectations of a rise of 20,000 to 236,000.
Asian currencies were largely up last week against the USD. Australian Dollar rose by 1.44%. New Zealand Dollar appreciated by 1.00%. Japanese Yen appreciated by 2.02% against the USD and appreciated by 0.36% against the Euro. South Korean Won appreciated by 0.18%, Philippines Peso depreciated by 0.37%, Indonesian Rupiah appreciated by 0.08%, Indian Rupee appreciated by 0.48% against the USD and appreciated by 0.30% against the Euro, Chinese Yuan appreciated by 1.20%, Malaysian Ringgit appreciated by 1.75% and Thai Baht appreciated by 1.64%.