Major world currencies touched their multiyear high levels against the USD on the back of continued political uncertainty and weak outlook for Trump Bumps to the economy. Market participants now doubt President Donald Trump’s ability to deliver on his economic agenda, after a healthcare bill aimed at replacing Obamacare failed to garner enough votes.
Further, nearly every piece of U.S. data released last week casts doubt on the need for additional tightening. Manufacturing activity in the NY and Philadelphia regions slowed in July and builder confidence fell. CPI inflation stagnated in June, causing the year-over-year CPI rate to drop to its lowest level in 8 months. Consumer spending contracted for the second month in a row by -0.2% in June. However, U.S. policymakers are still talking about raising interest rates one more time this year.
Australian Dollar hit to its strongest level in more than 2 years, the Euro was not far behind as it hit 23-month highs while the Canadian Dollar and Swiss Franc hit one-year highs. Sterling and the New Zealand Dollar hit 10-month highs although Sterling gave up some of its gains to end the week slightly lower. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.36% on a week on week basis and is at a level of 93.86.
USD started the week on a slightly higher note after data from China showed that China’s economy gained momentum in the second quarter. The data brightened the outlook for global growth as China is the world’s second largest economy. Data showed that China’s second-quarter gross domestic product expanded by an annualized 6.9%, driven by strong retail sales, industrial output and exports.
The Empire State manufacturing index dropped from 19.8 to 9.8 in July, missing expectations for a more modest decline to 15.
On a brighter side, U.S. homebuilding in June beat expectations, after declining for three straight months, offsetting the recent raft of economic reports pointing to possible weakness in the economy. Housing starts rose by 8.3% to 1.22 million units, the highest level since February against the expectation of a rise of 5.8%.
Euro appreciated by 1.68% last week against the USD. ECB in its policy review meet repeated its pledge to keep buying 60 billion Euros of new bonds each month until the end of this year and stuck to its promise to extend the program if needed. The central bank also repeated its pledge to keep borrowing costs at record low “for an extended period of time”.
However, the gain came after European Central Bank president Mario Draghi in post policy press conference said policymakers would discuss changes to its bond-buying scheme in September as the Central Bank saw signs of “unquestionable improvement” in Eurozone growth.
Asian currencies were up last week against the USD on broad USD weakness and the recovery in China GDP growth rate has given additional support to Australian Dollar which trade at multiyear high levels against the USD. Japanese Yen appreciated against the USD despite the Bank of Japan’s decision to maintain its current loose monetary policy measures and scale back of expectations concerning the pace of inflation.
Australian Dollar appreciated by 1.07%, New Zealand Dollar appreciated by 1.46%, Japanese Yen appreciated by 1.26% against the USD and depreciated by 0.42% against the Euro. South Korean Won appreciated by 1.34%, Philippines Peso depreciated by 0.27%, Indonesian Rupiah appreciated by 0.20%, Indian Rupee appreciated by 0.20% against the USD and depreciated by 1.79% against the Euro, Chinese Yuan appreciated by 0.13%, Malaysian Ringgit appreciated by 0.19% and Thai Baht appreciated by 0.94%.