USD started the week on a positive note on Monday as it received support from profit taking in the Euro after Emmanuel Macron’s victory in the French presidential elections. Centrist candidate Macron won the race to the French presidency, defeating anti-EU candidate by a landslide margin, garnering 66% of the French votes. The Euro spiked following Macron’s victory but gains were pared after market participants decided to take profits, following a two-week rally.
Euro depreciated by 0.61% against the USD last week. The victory for Macron signalled that political risks in France and across Europe are receding. Recent economic reports have indicated that the economic recovery in the Euro area is gathering momentum, which is expected to give the European Central Bank more room to turn neutral on monetary policy at the end of the year. ECB board member Yves Mersch said on Monday that the central bank will soon be able to adopt a more optimistic tone on the Euro Area economy. The Euro will see strength as both political and economic risks start getting priced out of the currency.
USD pared some of its gain on Friday last week as Fed June rate hike expectation were slightly hit after the release of weak economic data. Consumer spending and inflation increased but less than anticipated. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.61% on a week on week basis and is at a level of 99.25.
Fed rate-hike expectations dropped slightly after Friday’s reports but still the large part of the market believes in Fed June rate hike. Every single one of the Federal Reserve presidents who have spoken since the April jobs report believe that the economy is improving and further tightening is needed. Fed President Rosengren even said three more rate hikes could be needed but he is not a voting member of the FOMC this year. Nonetheless, it is clear that U.S. policymakers are happy with the progression of the economy and are therefore moving forward with policy normalization.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 6th May fell by 2,000 to 236,000 from previous week’s total of 245,000 against the expectations of a rise of 7,000 to 245,000.
U.S. Commerce Department separately reported that the producer prices increased by 0.5% in the month of April against the expectation for a rise of 0.2%. On a yearly basis producer prices rose 2.5% in April. Core producer prices rose by 0.4% in the month of April against the expectation for a gain of 0.2%.
U.S. Commerce Department reported that the retail sales rose 0.4% in the month of April against the expectation for a 0.6% rise. Core retail sales rose by 0.3% last month against the expectations for a 0.5% rise.
U.S. consumer price index rose by 0.2% in the month of April, which was largely in line with the expectations, following a 0.3% decline in the prior month. On yearly basis, consumer prices increased 2.2% in the month of April against the expectation for a 2.3% rise. Core CPI rose by 0.1% in the month of April against the expectation of 0.2% gain.
Asian currencies were mixed last week against the USD. Australian Dollar depreciated by 0.50%, New Zealand Dollar depreciated by 0.75%, Japanese Yen depreciated by 0.59% against the USD and appreciated by 0.03% against the Euro. South Korean Won appreciated by 1.12%, Philippines Peso appreciated by 0.36%, Indonesian Rupiah was flat, Indian Rupee appreciated by 0.1% against the USD and by 0.83% against the Euro, Chinese Yuan appreciated by 0.05%, Malaysian Ringgit depreciated by 0.16% and Thai Baht appreciated by 0.06%.