USD ended last week marginally higher after recovering on Friday from early losses on the back of the fastest pace of wage growth seen since 2008. Markets will start factoring in faster pace of rate hikes by the Fed and this will keep the USD supported at higher levels. USD Index (DXY), which tracks the movement of the USD against six major currencies, gained by 0.01% on a week on week basis and is at a level of 102.22. (
USD rose to its 14-year high level in December 2016 on the back of market expectations that the U.S. Federal Reserve will hike rates by as many as three times this year and that the President-elect Donald Trump will push growth and inflation with a program of fiscal expansion. USD finished 2016 with an almost 4% annual rise and 2016 is the fourth consecutive year of gains for the USD.
Friday’s U.S. jobs report release was not only strong enough to prevent the USD from sinking below 115 against the Japanese Yen but it was also good enough to take the currency pair above 117. Japanese Yen depreciated by 0.05% against USD after appreciating during early part of the week.
USD gained broadly on Friday as wage growth rose by 0.4%, the strongest rise since 2008. However, job additions at 156,000 in the month of December missed the expectations of 175,000. The decline while larger than expected was also the second-weakest month for job growth since May 2016. The unemployment rate rose to 4.7% from 4.6%, which was in line with expectations. The job growth in November was revised up from 178,000 to 204,000. The labour force participation rate also increased, explaining the rise in the unemployment rate.
The Institute for Supply Management reported on Tuesday that its index of manufacturing activity rose to 54.7 in the month of December from 53.2 in November. The reading was the highest since December 2014 and against the expectation of a level of 53.6.
Another report showed that U.S. construction spending hit a ten-and-a-half-year high in the month of November, boosting the outlook for fourth-quarter growth. Data showed that U.S. construction spending rose by 0.9% in the month of November from 0.6% rise in October against the expectation of 0.6%.
USD declined on Wednesday after the release of Minutes from the Federal Reserve December FOMC meeting, which showed that half of the Fed policymakers incorporated an assumption of more expansive fiscal policy under the Trump Administration. Members also agreed that there is heightened uncertainty about possible changes in fiscal and other economic policies as well as their effects.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 31st December fell by 28,000 to a 43 year low level of 235,000 from previous week’s total of 263,000 against the expectation of a decline of 3,000 to 260,000.
Eurozone inflation for December 2016 printed at its highest level in three years at 1.1% while Eurozone PMI grew at its fastest pace in five and half years. Countries such as Germany and Spain saw inflation trending higher while business confidence grew overall in the Eurozone. ECB in its December 2016 policy meet extended its bond purchase program to December 2017 from March 2017 but pared the size of the program from Euro 80 billion a month to Euro 60 billion a month starting April 2017. Bond yields in the Eurozone have risen sharply from lows on the back of improved economic data. Euro gained marginally against the USD last week.
Chinese Yuan weakened sharply against the USD on Friday. The Yuan failed to benefit from a stronger Yuan fix after the Chinese central bank strengthened the Yuan by the most since 2005. PBOC set the USD/CNY reference rate at 6.8668, sharply lower from Thursday’s 6.9307.
The Yuan has been under significant pressure over the past few months due to the broad strength in the USD, uncertainty about China’s economy and capital outflows, coming close to breaching the 7.0 mark, a level not broken in over 8 years.
Asian currencies closed mixed last week against the USD. Australian Dollar appreciated by 1.29%, New Zealand Dollar appreciated by 0.37%, Japanese Yen depreciated by 0.05% against the USD and by 0.23% against the Euro. South Korean Won appreciated by 1.08%, Philippines Peso appreciated by 0.27%, Indonesian Rupiah appreciated by 0.76%, Indian Rupee depreciated by 0.06% against the USD and by 0.44% against the Euro, Chinese Yuan appreciated by 0.54%, Malaysian Ringgit appreciated by 0.31% and Thai Baht depreciated by 0.36%.