USD ended the week marginally higher last week after paring most of its gains seen during the week after President Donald Trump said the U.S. will impose tariffs on steel and aluminium imports. The tariff imposition was followed by retaliation from Canada, European Union and China. Canada called the tariffs unacceptable but it was the EU and China that threatened to take their own protective measures if the U.S. proceeded with its plans. The European Union has already called a meeting next week to discuss a response.
USD was supported, as the Fed Chair Jerome Powell and other Fed speakers signalled a hawkish view on the economy driving rate hike expectation higher. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.07% on a week on week basis and is at a level of 89.94.
USD started the week on a higher note as the prior week release of minutes from the Fed’s January policy meeting showed that the central bank officials see increased economic growth and rising inflation as justification to continue to raise interest rates gradually. Market participants showed caution ahead of Federal Reserve Chairman Jerome Powell’s first congressional testimony.
USD surged after hawkish remarks made by the Federal Reserve Chairman Jerome Powell on Tuesday, boosting the expectation for faster rate hikes this year. In a prepared testimony on Tuesday, Fed Chairman Jerome Powell said that the Fed remains on track to gradually raise rates to keep the economy on an even keel amid strengthening growth and inflation. He also added that “The economic outlook remains strong, further gradual increases in the federal funds rate will best to promote attainment of both of our objectives.” Fed Chairman also made positive remarks on the U.S. economy at the Senate Banking Committee on Thursday and said that there was no evidence that the U.S. economy is overheating.
Further, the New York Federal Reserve President William Dudley said on Thursday that four interest-rate hikes this year would constitute a “gradual” tightening.
USD then came under heavy selling pressure on Thursday after President Donald Trump said the U.S. will impose tariffs on steel and aluminium imports next week. Trump said the US will impose a 25% tariff on steel imports and 10% tariff on aluminium. The move raised fears that the U.S.’s main trading partners including China could take countermeasures, fuelling fears that trade war could break out.
U.S. Commerce department on Tuesday reported that U.S. durable goods orders fell by the most in six months in January. Orders for durable goods, dropped 3.7% last month against the expectations of a drop of 2.4%, followed by a rise of 2.6%.
U.S. Commerce Department reported that the pending home sales fell 4.7% in February against the expectation of a rise of 0.4%, followed by a flat reading in January.
Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, rose 1.5% in the month of January, largely in line with the expectations.
Institute of Supply Management’s manufacturing index rose to 60.8 in February, up from the 59.1 reading seen last month.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 25th February fell by 10,000 to 210,000 from previous week claim of 220,000 against the expectation of a rise of 6,000 to 226,000.
Asian currencies were largely mixed last week against the USD. Australian Dollar depreciated by 0.91%. New Zealand Dollar depreciated by 0.78%. Japanese Yen appreciated by 0.81% against the USD and appreciated by 0.62% against the Euro. South Korean Won depreciated by 0.14%, Philippines Peso depreciated by 0.11%, Indonesian Rupiah depreciated by 0.65%, Indian Rupee depreciated by 0.67% against the USD and appreciated by 0.28% against the Euro, Chinese Yuan depreciated by 0.13%, Malaysian Ringgit appreciated by 0.38% and Thai Baht depreciated by 0.10%.