The Year 2017 was the worst year for the USD in more than a decade with the USD Index (DXY) falling by over 9%. The last time it faced such difficult times was in 2003 when it lost 14.6% of its value. USD has fallen in 2017 despite the fact that Federal Reserve was the most aggressive central bank, raising interest rates by 75bp on the backdrop of strong growth and low unemployment rate. GDP growth in 2017 was the strongest since 2014 and the unemployment rate was the lowest since 2000. However, for most of the year, President Trump struggled to advance his economic agenda and this, along with the rising tension between the U.S. and North Korea, hurt the confidence of global investors, who moved away from the USD.
Looking ahead to 2018, the Federal Reserve will continue to be the most hawkish central bank. Ultra-low unemployment, tax cuts, consumer and business confidence will lead to faster growth in the coming year. All of this should drive inflation and growth to higher, leading to a recovery for the USD in 2018
Last week, the USD declined against major world currencies. The move was driven by a firmer Euro and a surge in commodity linked currencies such as the Canadian and Australian Dollars. However, the biggest overhaul of the U.S. tax code in 30 years gave the USD some support, which became law last week, but markets are not confident that the tax reform will feed through quickly into increased consumer confidence. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.46% on a week on week basis and is at a level of 92.12.
The Australian and New Zealand dollars gained as copper prices hit a four-year high level and oil holding was at its strongest levels since mid-2015. Oil prices surged to two and a half-year highs on Tuesday, boosted by news of an explosion on a Libyan crude pipeline as well as on the back of voluntary OPEC-led supply cuts. Copper prices on Wednesday rocketed to their highest levels in three and a half years. On weekly basis Australian Dollar was up by 1.22% and New Zealand Dollar was up by 1.24% against USD.
On data front, U.S. National Association of Realtors reported that U.S. pending home sales remained unchanged in the month of November, rising by 0.2% month-on-month against the expectations for a 0.4% decline.
The Conference Board’s consumer confidence gauge fell to 122.1 in the month of December from a revised reading of 128.6 in November, against the expectation for a reading of 128.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 22nd December remained flat at 245,000 against the expectations of an decline of 5,000 to 240,000.
Euro appreciated by 1.27% against USD last week and is at level of 1.2005 after touching its highest in a month. Euro has gained more than 14% in the year 2017, its best annual performance since 2003 despite widespread political troubles and a central bank that was reluctant to scale bank Quantitative Easing. The steady strength of the German economy played a role in the currency’s out-performance.
Asian currencies were mixed last week against the USD. Australian Dollar rose by 0.90% on strong economic data. New Zealand Dollar appreciated by 0.26%. Japanese Yen depreciated by 0.68% against the USD and depreciated by 1.33% against the Euro. South Korean Won appreciated by 0.89%, Philippines Peso appreciated by 0.64%, Indonesian Rupiah appreciated by 0.10%, Indian Rupee was flat against the USD and depreciated by 0.43% against the Euro, Chinese Yuan appreciated by 0.49%, Malaysian Ringgit depreciated by 0.01% and Thai Baht depreciated by 0.70%.