Stronger-than-expected economic data along with hawkish comments from Federal Reserve officials and sharp fall in Euro after Catalans voted for independence helped to propel the USD sharply higher before the rally fizzled on reports that North Korea could test missiles this weekend. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.78% on a week on week basis and is at a level of 93.80.
The U.S monthly jobs report showed that employment unexpectedly declined in September, the unemployment rate ticked lower and wage inflation rose more than expected. Non-farm payrolls declined by 33,000 in September, compared to the rise of 169,000 a month earlier that was revised up from the initial increase of 156,000. The data missed the expectation for adding 90,000 jobs. However, the unemployment rate fell to 4.2% while average hourly earnings topped expectations, rising 0.5% from the previous month, which fuelled expectations that a tighter labour market would spark a rebound in inflation, strengthening the Fed’s position to hike rates later this year. Hurricanes led to fall in jobs and the September jobs report is seen as stronger than expected.
USD started the week on a high note largely on the back of the expectations for a rate hike and a tax overhaul in the U.S. before the end of the year, while the euro fell after Catalans voted for independence in a contested referendum on Sunday that ended in violence when police cracked down on polling booths, injuring hundreds of people. Despite Spanish police measures to disrupt the referendum, which was declared unconstitutional by Madrid, the Catalan government said that 90% of the people voted in favour of breaking away, with a turnout of about 42%. Euro depreciated by 0.71% against USD last week.
Further, the demand for USD remained underpinned amid speculation that U.S. President Donald Trump is considering former Federal Reserve Governor Kevin Warsh to succeed current Fed Chair Janet Yellen at the central bank. Warsh is seen as more hawkish than Yellen so his appointment could lead to a faster pace of interest rate hikes.
Speaking at a conference in Austin, Texas, Philadelphia Fed Bank President Patrick Harker on Thursday said he is still planning on one more rate hike this year and three next year.
Atlanta Fed President Raphael Bostic on the sidelines of a Fed conference in Austin, Texas said that “We, in our forecasts of movements for the year, had said we expected three hikes in the course of 2017. I am still in that space,”.
Institute for Supply Management (ISM) on Monday reported that its index of national factory activity surged to a reading of 60.8 last month, the highest reading since May 2004, from 58.8 in August and against the expectation of a reading of 58.
Institute for Supply Management’s non-manufacturing index rose to its highest level since August 2005 in September and the prices paid index reached its highest level since February 2012.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 30th September fell by 12,000 to 260,000 from previous week’s total of 272,000 against the expectations of a fall by 7,000 to 265,000.
U.S. Commerce Department reported on Thursday that the trade gap declined 2.7% to USD 42.4 billion against the expectations of a shortfall to narrow to USD 42.7 billion in August. July’s trade deficit was revised slightly down to USD 43.6 billion from the previously reported USD 43.7 billion.
British pound was the week’s worst-performing currency, which dropped sharply to lose 2.48% of its value against the USD. It underperformed every major currency despite mixed UK data. The latest PMI reports showed a slight slowdown in manufacturing activity, a contraction in construction-sector activity and acceleration in service-sector activity.
Asian currencies were broadly lower last week against the USD. Australian Dollar depreciated by 0.86%, New Zealand Dollar depreciated by 1.61%, Japanese Yen depreciated by 0.12% against the USD and appreciated by 0.58% against the Euro. South Korean Won appreciated by 0.30%, Philippines Peso depreciated by 0.60%, Indonesian Rupiah depreciated by 0.35%, Indian Rupee depreciated by 0.14% against the USD and appreciated by 0.73% against the Euro, Malaysian Ringgit depreciated by 0.39% and Thai Baht depreciated by 0.38%.