USD ended the week higher against major world currencies as minutes from Federal Reserve’s January meeting underlined expectations for faster hikes in U.S. interest rates. Rate hike expectations were further backed by positive U.S. economic data, released during the week. However, USD gain is seen as limited as ongoing concerns over the U.S. deficit continues to put pressure on USD. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.86% on a week on week basis and is at a level of 89.87.
USD started the week on a flat note on Monday as Friday’s upbeat U.S. housing sector data continued to support USD despite U.S. political worries. Friday data showed that U.S. homebuilding increased to more than a one-year high in January and that building permits soared to their highest level since 2007. However, the upbeat report was overshadowed by the concerns over the deficit in the U.S., which is projected to climb to near USD 1 trillion in 2019 following the recent announcement of infrastructure spending and large corporate tax cuts.
USD gained sharply on Thursday after the release of minutes from the Federal Reserve’s latest meeting. The minutes showed policymakers growing confidence in the U.S. economy which bolstered their plans to continue raising short-term interest rates as soon as next month.
Further, Minneapolis Fed president Neel Kashkari said that the central bank should continue on its current path and avoid overreacting to one-month upbeat wage and inflation data.
Federal Reserve Bank of Dallas President Robert Kaplan reiterated that the Fed should gradually raise rates in 2018. Kaplan also said that he expects that inflation will make progress toward 2% over 2018 and the impact of tax-cuts will be seen in 2018.
However, USD failed to hold much of its earlier gains on Friday as US 10-year yields fell ahead of new debt issuance and comments from St. Louis Fed President James Bullard. Bullard said that central bankers need to be careful not to raise rates too quickly this year because that could slow the economy amid expectations that other central banks are poised to hike rates this year which could restrict the Fed’s gradual approach to rate hikes.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 17th February fell by 8,000 to 222,000 from previous week claim of 229,000 against the expectation of a rise of 1,000 to 230,000.
Commerce Department showed existing home sales fell 3.2% in January from the previous month to a seasonally adjusted annual rate of 538 million units against the expectation of 0.9% rise to 5.61 million homes.
Indian Rupee depreciated by 0.79% against the USD last week amid higher inflation expectations and PSU banks woes INR came under heavy selling pressure during the week before RBI stepped in to stem the fall. The minutes of the February Monetary Policy Committee (MPC) meeting showed that most members are concerned about rising inflation pressures. RBI Governor Urjit Patel, in his statement noted that inflation is getting generalized but also added that the nascent growth recovery needs to be supported.
Asian currencies were largely lower last week against the USD. Australian Dollar depreciated by 0.94%. New Zealand Dollar depreciated by 1.26%. Japanese Yen depreciated by 0.38% against the USD and appreciated by 0.64% against the Euro. South Korean Won appreciated by 1.47%, Philippines Peso appreciated by 0.74%, Indonesian Rupiah depreciated by 1.05%, Indian Rupee appreciated by 0.79% against the USD and appreciated by 0.71% against the Euro, Chinese Yuan appreciated by 0.07%, Malaysian Ringgit depreciated by 0.62% and Thai Baht depreciated by 0.32%.