Last week was an extremely eventful week for the currency markets that saw many major currencies moving sharply higher against the USD. The currencies were largely driven by global caentral banks comments. Market participants reassessed their positions after Bank of England Governor Mark Carney and European Central Bank President Draghi turned hawkish. The USD experienced broad-based losses as U.S. data released in the recent past cast doubt on the Fed’s hawkishness and data in the Eurozone confirmed the optimism of central bankers in Europe. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 1.68% on a week on week basis and is at a level of 95.63.
St. Louis Federal Reserve President James Bullard said that the Fed should hold off on any further rate increases to see how the economy is progressing. San Francisco Fed President John Williams said that the Fed needs to keep raising rates gradually with the U.S. economy at full employment and inflation set to hit the Fed’s 2% target next year.
USD came under additional pressure after Fed chair Janet Yellen offered relatively little input on monetary policy on Tuesday and U.S. Senate Republicans postponed a vote on the Trump administration’s healthcare bill. Fed Chair Janet Yellen reiterated that it was appropriate to raise interest rates “very gradually to a level that is likely to remain quite low by historical standards for a long time”. “We intend to very gradually shrink our balance sheet, we will not be selling assets and we will been providing more and more detail on that,” She added.
The highly anticipated U.S. healthcare reform bill, which was supposed to be cleared on Tuesday was delayed. Continuous hurdles in clearing the policies by the President Trump administration is heightening the worries over the timeline for President Donald Trump’s business-friendly policies. Senate Republican leader Mitch McConnell decided to put off a planned vote on a bill to dismantle the Affordable Care Act until after the Senate’s July 4 recess, to get more time to garner sufficient votes for its passage.
Commerce Department reported that U.S. durable goods orders unexpectedly fell by 1.1% in the month of May after declining 0.9% in April, pointing to a loss of momentum in the manufacturing sector. Consumer Confidence Index rose in June to 118.9, despite expectations for it to drop.
U.S. National Association of Realtors reported that pending home sales decreased by 0.8% last month, against the expectations for a gain of 0.8%.
U.S. gross domestic product rose 1.4% in the first quarter, revised up from the previous reading of a 1.2% expansion against the expectation for growth to remain unchanged.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 24th June rose by 2,000 to 244,000 from previous week’s total of 242,000 against the expectations of a fall of 2,000 to 240,000.
U.S. Commerce Department reported that the personal spending rose 0.1% in the month of May largely in line with the expectations and after an increase of 0.4% the previous month. Personal income rose by 0.4% in the month of May against the expectations for a 0.3% gain.
University of Michigan reported that its consumer sentiment index rose to 95.1 in June from 94.5 the previous month, beating expectations for an unchanged reading.
British Pound appreciated by 2.41% against USD last week after Bank of England Governor Mark Carney said on Wednesday that some removal of monetary stimulus is likely to become necessary as spare capacity in the economy erodes. The BoE’s monetary policy committee was split 5-3 at its meeting earlier this month on whether to raise interest rates from a record-low 0.25%. Carney voted to keep rates unchanged.
Euro appreciated by 2.07% against USD after Draghi said factors weighing on inflation in the Euro area were mainly temporary, adding that deflationary forces are being replaced by inflationary ones. Draghi said the ECB sees growth that is above trend and well distributed across the Euro area, but reiterated that “a considerable degree” of stimulus is still needed in the Eurozone, and that the ECB must be “prudent” in how it unwinds stimulus.
Asian currencies were down last week against the USD. Australian Dollar depreciated by 1.6%, New Zealand Dollar appreciated by 0.66%, Japanese Yen depreciated by 0.99% against the USD and depreciated by 3.04% against the Euro. South Korean Won depreciated by 0.46%, Philippines Peso depreciated by 0.57%, Indonesian Rupiah depreciated by 0.31%, Indian Rupee depreciated by 0.1% against the USD and depreciated by 2.23% against the Euro, Chinese Yuan appreciated by 0.82%, Malaysian Ringgit depreciated by 0.08% and Thai Baht remained flat.