USD rose last week on the back of optimism over the US economy prompting Fed rate hikes and on the back of worries over the outcome of the French election scheduled for April 2017. Fed is likely to hike rates by at least three times in 2017 though market’s are still divided on a March rate hike. Worries of a Frexit if Le Pen wins the French elections is leading to rising spreads of French bonds over German Bunds.
USD will continue to stay strong as a safe haven currency as the Euro is vulnerable to French election outcome.
US President Trump’s speech before a joint session of Congress this week and policy plans that are likely to provide clarity on his economic decisions will give direction for currency markets this week. Last week, Federal Reserve Board released minutes for February 1st meet where members expressed the view that it may be appropriate to raise rates fairly soon if data on labour market and inflation are in line with or stronger than their current expectations. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.17% on a week on week basis and is at a level of 101.12.
Cleveland Fed President Loretta Mester on Monday said that she would be comfortable raising rates at this point if the economy maintained its current performance while Philadelphia Fed President Patrick Harker said that a March rise is on the table.
U.S. Commerce Department on Friday reported that new home sales rose by 3.7% to 555,000 units in January against the expectations for a 6.3% rise.
University of Michigan reported that its consumer sentiment index fell to 96.3 in the month of February from a January reading of 98.5 and compared to expectations for 96.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 18th February rose by 6000 to 244,000 from previous week’s total of 238,000 against the expectation of a rise of 2,000 to 241,000.
British pound depreciated by 0.40% against the USD last week and is expected to depreciate further on trigger of Brexit article 50 in March 2017. Euro depreciated by 0.5% against the USD last week on gaining popularity of right wing candidate Marine Le Pen.
Brazilian Real depreciated by 0.41% against the USD, as the economy is expected to shrink 2.2% in the 4th quarter of 2016. Russian Ruble depreciated by 0.18% against the USD,as Russia becomes the largest oil producer in the world. Ruble movement is closely linked with crude oil price movements, which have been tightly ranged post OPEC cuts.
Asian currencies were mixed last week against the USD. Australian Dollar appreciated by 0.16%, New Zealand Dollar appreciated by 0.39%, Japanese Yen appreciated by 0.64% against the USD and by 1.16% against the Euro. South Korean Won appreciated by 1.35%, Philippines Peso depreciated by 0.29%, Indonesian Rupiah appreciated by 0.02%, Indian Rupee appreciated by 0.29% against the USD and by 1.18% against the Euro, Chinese Yuan depreciated by 0.04%, Malaysian Ringgit appreciated by 0.28% and Thai Baht appreciated by 0.34%.