USD was volatile last week and ended lower against major world currencies despite the release of upbeat U.S. economic data and upbeat comments by Federal Reserve Chair Janet Yellen on the economy. Currency markets focused on President Donald Trump’s inaugural speech on Friday as he hit populist themes such as halting off-shoring of work that have raised concerns of a trade war with leading exporters such as China. The comment made by him earlier last week that U.S. companies could not compete with China “because our currency is too strong” added to volatility in the USD. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.43% on a week on week basis and is at a level of 100.74.
USD had rallied sharply after Trump victory on 8th November 2016 and traded at 14-year high levels on expectations that fiscal stimulus proposed by U.S. President Donald Trump would boost growth and inflation and will lead to a faster pace of U.S. interest rate hikes. However, USD has fallen by more than 2% over the past three weeks on uncertainty over Trump’s policies.
USD rose on Wednesday after falling for five days in a row largely helped by the release of positive U.S. economic data and Federal Reserve Chair Janet Yellen’s remark that a “few” increases in U.S interest rates could be appropriate this year, shifting market participants attention back to the narrative of strong growth and rising inflation in the U.S.
U.S. Commerce Department on Wednesday reported that consumer prices gained 0.3% in the month of December, which was largely in line with expectations, followed by a 0.2% rise in November. Year-on-year, consumer prices increased 2.1% in the month of December, which again was in-line with the expectation followed by a 1.7% rise in November.
U.S. industrial production rose 0.8% in the month of December against the expectation for a gain of 0.6%. However, manufacturing production increased by 0.2% in the month of December against the expectation for a rise of 0.4%.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 14st January fell by 15,000 to 234,000 from previous week’s total of 249,000 against the expectation of a rise of 5,000 to 254,000.
U.S. Commerce Department reported that housing starts increased by 11.3% to 1.226 million units in the month of December against the expectations for a rise to 1.200 million units. However, building permits unexpectedly decreased by 0.2% to 1.210 million units in December.
British Pound appreciated by 1.58% against the USD last week. British Pound rallied on Tuesday and posted its largest gain since early 2009 after British Prime Minister Theresa May’s Brexit speech. In her speech in London, Theresa May confirmed that Britain will be leaving the single market when it exits the European Union, but would seek maximum access to it through a new trade agreement. May also said that the final Brexit deal will be put to parliament for a vote.
British Pound also received a boost after data showed that U.K. inflation hit the highest since mid-2014 in December. Office for National Statistics reported that the annual rate of inflation accelerated to 1.6% in the month of December from 1.2% in November against the expectation for a gain of 1.4%.
Office for National Statistics on Wednesday reported that U.K. jobless claims fell in December, wages rose and unemployment rate remained unchanged at an eleven-year low of 4.8%. The data showed that the claimant count fell by 10,100 in December against the expectations for an increase of 5,000.
British pound gained by 1.96% on Tuesday and by 1.31% last week against the Euro.
Euro appreciated by 0.56% against the USD last week. ECB left its benchmark interest rate unchanged at a record-low 0.0%, in line with the expectation and kept the size of its monthly quantitative easing program at approximately 80 billion Euro. European Central Bank President Mario Draghi commented that the growth outlook for the Euro area has improved, but reiterated that quantitative easing can be increased if the outlook becomes less favourable.
Asian currencies were mixed last week against the USD. Australian Dollar appreciated by 0.71%, New Zealand Dollar appreciated by 0.55%, Japanese Yen depreciated by 0.11% against the USD and by 0.67% against the Euro. South Korean Won appreciated by 0.5%, Philippines Peso depreciated by 0.56%, Indonesian Rupiah depreciated by 0.54%, Indian Rupee depreciated by 0.03% against the USD and appreciated by 0.15% against the Euro, Chinese Yuan appreciated by 0.35%, Malaysian Ringgit appreciated by 0.36% and Thai Baht appreciated by 0.17%.