After rising for four consecutive weeks, USD fell on profit booking despite relatively decent U.S. data released in the recent past. Geopolitical tensions and Federal Reserve’s September policy meeting minutes, which showed that policymakers were divided on inflation, were the reasons cited for USD fall. The USD fell against all of the major currencies, losing nearly 2% of its value against British Pound and more than 1% against the Euro, Australian and New Zealand dollars. A Fed rate hike in December is almost fully priced in the currency while the recent positive economic reports seem less convincing for the markets for 3 more rate hikes next year. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.76% on a week on week basis and is at a level of 93.09.
There are 2 main threats hanging over the USD right now, North Korea and the selection of a new Fed chair. The timing for both is unknown as are the consequences. Further, the economic recovery over the next 2 month stands vital as the December 2017 policy meet and a rate hike will probably be the last of Yellen’s career at the Fed, which means every incoming economic report will be scrutinized carefully.
USD started the week on a low note amid renewed worries over tensions with North Korea following reports that Pyongyang is preparing to test a long-range missile that it is believed could reach the west cost of the U.S. Meanwhile, U.S. and Turkey mutually suspended visa services between the two countries on Sunday amid an escalating diplomatic crisis, while Iran vowed a “crushing” response should Washington deem the Revolutionary Guards a terrorist group.
USD continued to remain under pressure on Tuesday as the euro regained ground following upbeat German trade data and hawkish remarks by a European Central Bank official. ECB executive board member Sabine Lautenschlaeger said that the bank should scale back its asset purchases next year with the aim to halt the program altogether. Further, U.S. President Donald Trump’s public feud with Tennessee Senator and fellow Republican Bob Corker sparked concerns over the vote of a major tax-code reform.
Federal Reserve’s September policy meeting minutes showed that policymakers were divided on inflation. Several policymakers believe additional tightening will depend on upcoming inflation data. However, most Fed members said that they feel another rate increase this year “was likely to be warranted.
U.S. Labour Department’s latest Job Openings and Labour Turnover Survey (JOLTs) report, a measure of labour demand, showed job openings in August fell to 6.082m, falling short of expectations of 6.125m.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 7th October fell by 8,000 to 243,000 from previous week’s total of 258,000 against the expectations of a fall by 7,000 to 251,000.
A separate report showed that producer prices increased 0.4% in September, in line with expectations. Core producer prices, which exclude food and energy also rose 0.4%, beating expectations for a 0.2% uptick.
U.S. Commerce Department reported that consumer prices rose less than expected in September, both on a monthly and annual basis. Data shows that consumer prices rose 0.5% in the month of September, against the expectation for an increase of 0.6% and after a 0.4% gain in the prior month. Year-over-year, consumer prices increased 2.2% last month, below expectations for a 2.3% increase and compared to the 1.9% rise seen in August.
A separate report showed that U.S. retail sales also increased less than expectations. However, the core reading exceeded market expectations. U.S. Commerce Department reported that retail sales rose 1.6% from the prior month, against the expectation for a gain of 1.7%. Core retail sales, which exclude automobile sales, rose by 1.0% in September, against the expectations of a 0.3% rise.
Asian currencies were broadly higher last week against the USD. Australian Dollar appreciated by 1.54%, New Zealand Dollar appreciated by 1.24%, Japanese Yen appreciated by 0.74% against the USD and depreciated by 0.04% against the Euro. South Korean Won appreciated by 1.15%, Philippines Peso depreciated by 0.46%, Indonesian Rupiah appreciated by 0.16%, Indian Rupee appreciated by 0.69% against the USD and depreciated by 0.24% against the Euro, Chinese Yuan appreciated by 1.11%, Malaysian Ringgit appreciated by 0.36% and Thai Baht appreciated by 1.16%.