Risk aversion continues to be the main driver for the currency market and USD is likely to see high volatility on Trump and Geopolitical issues. The equity market globally declined sharply last week amid political and geopolitical worries. The VIX, which measures the volatility in the equity markets, rose to its highest level since April. However, USD found some support after the release of upbeat U.S. economic data, which lifted the expectations of a third rate hike later this year.
Fed minutes of the July policy meeting released last week showed that members of the central bank were divided over the need to raise interest rates further this year, on low inflation. New York Fed President William Dudley said on Monday that he favoured another interest rate hike this year if the economic conditions evolved in line with his expectations.
USD ended the week flat against the Japanese Yen after almost hitting 111, it ended the week higher versus Euro and British Pound. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.39% on a week on week basis and is at a level of 93.43.
USD started the week on a high note as markets digested disappointing U.S. inflation data released on Friday, while geopolitical tensions between the U.S. and North Korea began to ease and upbeat Japanese economic data lifted sentiments on risky assets.
U.S. Secretary of Defence Jim Mattis and Secretary of State Rex Tillerson both wrote that the U.S. administration would continue to seek diplomatic resolutions with Pyongyang. At the same time, South Korean President Moon Jae-in said there will be no military action upon the Korean peninsula without Seoul’s consent and that the government would prevent war by all means.
Japanese second-quarter growth expanded 1% quarter-on-quarter, on the back of a rise in consumption and capital expenditure against the forecasts of a 0.6% increase.
U.S. retail sales rose at a faster than expected rate in July, brightening the outlook for economic growth in the third quarter. U.S. Commerce Department reported that retail sales rose 0.6% last month against the expectation for rise of 0.4%, followed by 0.3% in June.
A separate report showed that the Empire State manufacturing index climbed to 25.20 in August from 9.80 the previous month, against the expectations for a reading of 10.00. It was the highest level since September 2014.
U.S. Commerce Department reported that housing starts unexpectedly decreased by 4.8% to hit 1.155 million units in the month of July from June’s total of 1.213 million units, against the expectation for a reading to rise by 0.5% to 1.220 million units.
USD came under selling pressure on Wednesday as fresh political tension hit Washington after U.S. President Donald Trump disbanded two high-profile business advisory councils, sparking concerns over the administration’s ability to implement his economic reforms. The move came after several chief executives quit in protest over his remarks blaming weekend violence in Virginia not only on white nationalists but also on anti-racism activists who opposed them.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 12th August fell by 12,000 to 232,000 from previous week’s total of 244,000 against the expectations of a fall by 4,000 to 240,000.
Federal Reserve Bank of Philadelphia reported that its manufacturing index decreased to 18.9 this month from July’s reading of 19.5 against the expectation for the index to decline to 18.5.
Euro depreciated by 0.51% against the USD last week amid ECB’s views on the currency and the terrorist attack in Spain. Euro weakened broadly after the minutes of the European Central Bank’s latest meeting indicates concerns over the strength of the Euro, which has risen to two-and-a-half year highs against the USD in recent months. Further reports suggest that ECB President Mario Draghi will not deliver any fresh monetary policy message at the U.S. Federal Reserve’s Jackson Hole conference.
Asian currencies were largely flat last week against the USD. Australian Dollar appreciated by 0.44%, New Zealand Dollar appreciated by 0.03%, Japanese Yen appreciated by 0.01% against the USD and appreciated by 0.52% against the Euro. South Korean Won appreciated by 0.21%, Philippines Peso depreciated by 0.86%, Indonesian Rupiah depreciated by 0.01%, Indian Rupee depreciated by 0.01% against the USD and appreciated by 0.2% against the Euro, Chinese Yuan depreciated by 0.1%, Malaysian Ringgit appreciated by 0.12% and Thai Baht was flat.