12 Feb 2017

USD Gains on Political Uncertainty in Europe & Trump Tax Cuts

USD, which had weakened for the last four consecutive weeks, strengthened last week against major world currencies.

author dp
Team INRBonds
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USD, which had weakened for the last  four consecutive weeks, strengthened last week against major world currencies. U.S. data released last week were mostly better with the trade balance narrowing, jobless claims falling and import prices rising. However, USD major gains came after President Trump said he will announce “something phenomenal on taxes in 1-2 weeks”. Rising political uncertainty in Europe also supported  the USD helping the currency post weekly gains. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.93% on a week on week basis and is at a level of 100.80.

USD started the week on a slightly low note after January 2017 monthly jobs report showed that wage growth was tepid. USD gained support as Euro came under pressure after European Central Bank President Mario Draghi downplayed the expectations for the bank to scale back its stimulus program. He said that the recent rise in Eurozone inflation is temporary and is entirely due to rising oil prices and reiterated that underlying inflation remains very subdued.

Data released on Tuesday showed that the U.S. trade deficit narrowed in the month of December to USD 44.3 billion, on the back of an increase in exports. The report also showed that the U.S. trade deficit hit a four-year high in 2016, at USD 502.3 billion, up from USD 500.4 billion in 2015.

U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 4th February fell by 12,000 to 234,000 from previous week’s total of 246,000 against the expectation of a rise of 4,000 to 250,000. Individuals filing for jobless benefits is close to the 43-year low of 233,000 reached early last November.

U.S. Bureau of Labour Statistics reported that  import prices increased by 0.4% in the month of January against the expectation of rise of 0.2% followed by 0.5% rise in December. Export prices rose 0.1% in the month of January, which was largely in line with expectations, followed by 0.4% rise in December.

University of Michigan reported that its consumer sentiment index fell to 95.7 in the month of February from 98.5 the previous month against the expectations for a slip to 97.9.

The sentiment for the Euro was hit by concerns over the political uncertainty in the region as market participants remained cautious about Brexit or Trump-style shock result in France’s upcoming presidential election. Marine Le Pen, head of the National Front party, launched her presidential campaign on Sunday with promises to exit the Eurozone and protect France against globalization. Further, narrowing of opinion polls in Germany and worries over Greece’s bailout added to investor jitters. The Euro depreciated by 1.3% against the USD last week. (

Russian Ruble appreciated by 1.18% last week against the USD. The Central Bank of Russia kept rates on hold at 10% last Friday and added that it saw less room for rate cuts going forward amid rising inflation risks. Russian Ruble is the best performing currency in the last one year as it appreciated by 37.29% against the USD.

Indian Rupee appreciated by 0.65% against the USD last week after RBI held its benchmark interest rate at 6.25% and signalled the end of an accommodative cycle. “The decision of the MPC is consistent with a neutral stance of monetary policy in consonance with the objective of achieving consumer price index or CPI inflation at 5% by Q4 of 2016-17 and the medium-term target of 4% within a band of +/- 2%, while supporting growth,” the RBI said in its statement. 

Asian currencies were mixed last week against the USD. Australian Dollar depreciated by 0.08%, New Zealand Dollar depreciated by 1.71%, Japanese Yen depreciated by 0.54% against the USD and appreciated by 0.8% against the Euro. South Korean Won depreciated by 0.28%, Philippines Peso depreciated by 0.23%, Indonesian Rupiah appreciated by 0.23%, Indian Rupee appreciated by 0.65% against the USD and by 1.52% against the Euro, Chinese Yuan depreciated by 0.16%, Malaysian Ringgit depreciated by 0.36% and Thai Baht depreciated by 0.13%.