USD saw broad based weakness last week while British Pound, Australian Dollar and Canadian Dollar saw good strength. Weak U.S. economic reports and Yellen’s unimpressive comment in her testimony to congress last week led to the broad weakness in the USD. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.89% on a week on week basis and is at a level of 95.15.
USD came under heavy selling pressure as Fed Chair Janet Yellen did not solidify her positive views, instead she expressed concerns about low inflation, which was confirmed by the last consumer price report. CPI inflation stagnated in June, causing the year-over-year CPI rate to drop to its lowest level in 8 months. Low inflation was not the only problem for the USD, consumer spending contracted for the second month in a row by -0.2% in June, which is negative for the US economy.
USD started the week on a high note after a better than expected U.S. jobs report, which indicated that the Federal Reserve would stick to plans for a third rate hike this year. The U.S. economy added 222,000 jobs in June more than the expectation of 179,000 new job additions.
USD weakened on Tuesday after two Fed officials cited sluggish wage growth and subdued inflation as reasons to stick to a cautious approach on raising interest rates. Fed Governor Lael Brainard suggested her support for any future rate increases will depend in part on how inflation shapes up. At a separate event, Minneapolis Fed President Neel Kashkari said he finds it hard to believe that the U.S. economy is in danger of overheating when wage growth is so low.
In a prepared testimony to the House Financial Services committee, Yellen said that the Fed is likely to unwind its stimulus despite low inflation. Yellen gave no clear indication of whether the Fed would raise interest rates a third time this year. The Fed chair also emphasized that inflation is below target and noted that it is a particular “uncertainty” that could affect monetary policy.
Data released on Thursday showed that U.S. producer prices rose by 0.1% in the month of June against the expectations of a 0.2% rise. The rate of inflation over the past 12 months slowed to 1.6% in June from 1.9% in the prior month, and it is down from a five-year high of 2.7%.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 7th July fell by 3,000 to 247,000 from previous week’s total of 250,000 against the expectations of a fall of 5,000 to 245,000.
Adding to the negative sentiment on the U.S. economy, was a report showing a 0.2% fall in retail sales. It was the second-straight month of timid retail sales activity and missed expectation of a 0.2% increase.
The yen started the week on a low note against the USD and Euro, as the diverging monetary policy outlook between the Bank of Japan and central banks in Europe and the U.S. pressured the currency lower. In a speech on Monday, BoJ Governor Haruhiko Kuroda reiterated that the bank is resolved to keep its stimulus program in place until inflation is in line with its 2% target. However, in the later part of the week, Yen pared its losses on the back of broad USD weakness and ended the week on the positive side. Japanese Yen appreciated 1.24% and 0.66% against USD and Euro respectively.
Asian currencies were up last week against the USD. Australian Dollar appreciated by 3.04%, New Zealand Dollar appreciated by 0.91%, Japanese Yen appreciated by 1.24% against the USD and appreciated by 0.66% against the Euro. South Korean Won appreciated by 1.85%, Philippines Peso appreciated by 0.09%, Indonesian Rupiah appreciated by 0.45%, Indian Rupee appreciated by 0.23% against the USD and appreciated by 0.22% against the Euro, Chinese Yuan appreciated by 0.45%, Malaysian Ringgit appreciated by 0.2% and Thai Baht appreciated by 1.08%.