USD slipped lower last week, as global equity markets showed signs of stability after a recent rout, reviving risk appetite. USD hit a 15-month low against the Japanese Yen and fell sharply against the Euro and the British Pound. USD found support after data showed that U.S. inflation rose stronger than expected in the month of January, prompting expectations of faster pace of interest rate increases from the Federal Reserve. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.48% on a week on week basis and is at a level of 89.10. Japanese Yen appreciated by 2.44% against the USD and by 1.08% against the euro.
USD started the week on a slightly higher note, as market participants took a breather after the U.S. Congress passed a two-year budget agreement early Friday morning, ending a brief government shutdown. The agreement is set to boost federal spending by almost USD 300 billion and suspend the debt ceiling for a year.
U.S. Department of Labour reported that the annual rate of inflation rose 2.1% in the month of January and 1.8% on a core basis. Consumer prices rose 0.5% from a month earlier and 0.2% on a core basis. USD exhibited limited rise despite the release of upbeat inflation data largely due to the surprise decline in U.S. retail sales in January. Report showed that U.S. retail sales fell 0.3% in the month of January after a 0.4% gain in December, against the expectation of a gain of 0.2%.
USD on Thursday came under additional pressure as worries over twin deficits in the United States mounted amid a government spending splurge and large corporate tax cuts. The U.S. national debt recently topped USD 20 trillion, while the 2019 fiscal deficit is projected at near USD 1 trillion, including deficit-financed tax cuts and two-year spending caps that Congress passed last week.
University of Michigan’s Consumer Survey reported that the consumer sentiment rose to 99.9 last month, its second highest reading since 2004 against the expectation for the reading to slip to 95.4 followed by 95.7 reading in January.
U.S. Commerce Department on Friday reported that Housing starts rose by 9.7% to an annual rate of 1.326 million units. That was the highest level since October 2016 and followed 1.209 million units in previous month and against the expectation of 1.234 million units.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 10th February rose by 7,000 to 230,000 in line with the expectation.
Euro appreciated by 1.26% against the USD last week as latest Eurozone economic reports showed ongoing strength in the Eurozone economy. (Read our Global Economic Data Analysis). Upbeat economic data continue to support the expectations that the European Central Bank will start to scale back its stimulus program later this year.
British Pound appreciated by 1.44% against the USD last week. The pound has been on an uptrend largely on the expectations by the market participants that the Bank of England will raise interest rates later this year, despite inflation data coming lower, retail sales growth slowing and lack of progress on Brexit negotiations.
Asian currencies were largely higher last week against the USD. Australian Dollar appreciated by 1.18%. New Zealand Dollar appreciated by 1.81%. Japanese Yen appreciated by 2.44% against the USD and appreciated by 1.08% against the Euro. South Korean Won appreciated by 2.73%, Philippines Peso depreciated by 1.38%, Indonesian Rupiah appreciated by 0.77%, Indian Rupee appreciated by 0.28% against the USD and depreciated by 1.65% against the Euro, Chinese Yuan depreciated by 0.6%, Malaysian Ringgit appreciated by 1.16% and Thai Baht appreciated by 1.26%.