17 Dec 2017

USD Stays Steady not on Fed Rate Hike buton Tax Reform Progress

US Fed raised its benchmark interest rate by 25 bps to a range of 1.25% – 1.5% and kept its rate outlook unchanged for 2018 & 2019.

author dp
Team INRBonds
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US Fed raised its benchmark interest rate by 25 bps to a range of 1.25% – 1.5% and kept its rate outlook unchanged for 2018 & 2019. Fed forecasts 3 additional rate hikes each in 2018 and 2019. USD failed to find strength as Fed is not seen as hawkish as it guided for gradual pace of rate hikes and slow winding down of its balance sheet. However, USD gained, as the US Republicans from both houses of the Congress unveiled the final tax bill, which propose to bring down corporate tax to 21% and individual income tax to 37% .US senators will vote on the tax bill this week.

USD Index (DXY), which tracks the movement of the USD against six major currencies, closed marginally higher by 0.03% on a week on week basis and is at a level of 93.93.

U.S. overall retail sales rose 0.8% in November against 0.5% in October. Sales rose more than forecast of 0.3%, indicating strong consumer demand on holiday shopping season kicking off in November.

U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 8th December fell by 11,000 to 225,000 from previous week’s total of 236,000 against the expectations of a increasing of 3,000 to 239,000.

Euro and GBP depreciated by 0.20% and 0.52% respectively against the USD last week. ECB kept benchmark rates unchanged and from January 2018, will scale down its asset purchase program to Euro 30 billion a month from Euro 60 billion a month on strengthening eurozone economic fundamantals. UK posted strong economic data in November wuth rising inflation, healthy wage growth and strong retail sales but Bank of England stated that fourth quarter economic performance could be lower than expectations leading to GBP depreciation.

Asian currencies appreciated last week against the USD. Australian Dollar rallied by 1.82% on strong jobs data, economy added 61000 jobs in November against the expectation of 20000, indicating strong GDP growth ahead. New Zealand Dollar strongly gained by 2.13% as  Government of New Zealand named  Adrian Orr as New Central Bank Governor, who is seen as pro-market. Japanese Yen appreciated by 0.78% against the USD and appreciated by 0.98% against the Euro. South Korean Won appreciated by 0.30%, Philippines Peso appreciated by 0.21%, Indonesian Rupiah depreciated by 0.15%, Indian Rupee appreciated by 0.64% against the USD and appreciated by 0.10% against the Euro, Chinese Yuan appreciated by 0.30%, Malaysian Ringgit appreciated by 0.20% and Thai Baht appreciated by 0.35%.