USD was volatile last week despite Fed rate hike and guidance for one more rate hike this year. Fed hiked rates by 25bps, the third rate hike since December 2016, in its recently concluded FOMC meet on 14th June. USD gained against most of the emerging currencies along with the Japanese Yen, however it lost some ground against Australian Dollar and British Pound. The lack of strength in the USD is suggesting that the markets are not convinced by the hawkish comment made by the Fed Chair Janet Yellen. Investors are skeptical because of the recent disappointment in U.S. data including Friday’s consumer confidence and housing market reports. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.11% on a week on week basis and is at a level of 97.16.
Fed may be overoptimistic on inflation and that could weaken the USD if Fed actions result in US economic growth and inflation moderating.
Last week 4 major central bank concluded their policy meeting and the most significant were the Federal Reserve and Bank of England announcements. Swiss National Banks left interest rates unchanged and made no particularly market-moving comments.
The Bank of Japan kept interest rates on hold. Overnight interest rates stay at minus 0.1%, 10-year bond yields are capped at about zero per cent, and the central bank said it would continue to buy assets at a pace of 80 trillion Yen a year.
Fed raised interest rates by 25 bps and guided for one more rate hike in the year 2017 in its latest FOMC meet on the 14th of June. Fed Chair Janet Yellen also said shrinking of Fed Balance sheet can happen soon if economy develops as per the central bank’s expectations.
British Pound appreciated by 0.29% against USD last week after the Bank of England left its monetary policy unchanged, in line with expectations, but members of the Monetary Policy Committee surprised markets as 3 members voted for an immediate rate hike.
USD started the week on a cautious note ahead of Federal Reserve’s highly-anticipated rate decision and amid ongoing political woes in the U.S. Investors were cautious as more than 190 Democratic lawmakers sued President Donald Trump accusing him of receiving funds from foreign governments through his firms thus of violating the constitution.
U.S. Commerce Department reported that retail sales fell 0.3% in the month of May against the expectation for a 0.1% rise. Core retail sales fell by 0.3% in the month of May against the expectations for an increase of 0.2%.
A separate report showed that the U.S. consumer price index fell by 0.1% last month against the expectation for an increase of 0.1%. On yearly basis, consumer prices gained 1.9%, against the expectations for 2.0% rise. Core consumer prices rose by 0.1% against the expectation for a 0.2% rise.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 10th June fell by 8,000 to 237,000 from previous week’s total of 245,000 against the expectations of a fall of 3,000 to 242,000.
Federal Reserve Bank of Philadelphia reported that its manufacturing index slipped to 27.6 this month from May’s reading of 38.8 against the expectation for the index to decline to 24. The Empire State manufacturing index climbed to 19.80 in the month of June from -1.00 the previous month against the expectation for a reading of 4.
The University of Michigan reported that its consumer sentiment index fell to 94.5 in June from 97.1 in May against the expectation for a unchanged reading.
U.S. Commerce Department reported that housing starts decreased by 5.5% in the month of May to hit 1.092 million units from April’s total of 1.156 million units against the expectation for a rise by 4.1% to 1.215 million.
U.S. building permits declined by 4.9% to 1.168 million units in the month of May from 1.228 million the month before against the expectation for a rise by 1.8% to 1.250 million units.
Euro appreciated by 0.03% against USD last week after the International Monetary Fund and the Eurozone’s 19 finance ministers backed a payout of 8.5 billion Euro to Greece.
Asian currencies were mixed last week against the USD. Australian Dollar appreciated by 1.25%, New Zealand Dollar appreciated by 0.57%, Japanese Yen depreciated by 0.51% against the USD and depreciated by 0.52% against the Euro. South Korean Won depreciated by 0.97%, Philippines Peso depreciated by 0.83%, Indonesian Rupiah depreciated by 0.06%, Indian Rupee appreciated by 0.27% against the USD and depreciated by 0.22% against the Euro, Chinese Yuan depreciated by 0.18%, Malaysian Ringgit depreciated by 0.25% and Thai Baht appreciated by 0.38%.