ECB President Mario Draghi on Thursday said that it would be necessary to “review and reconsider” the bank’s monetary policy stance at its next meeting in the month of March, when new economic projections become available”. He also added that lower oil prices should help consumers and businesses, but the risks to Eurozone growth remained to the downside. ECB left the deposit rate at -0.3% after December’s cut and held the benchmark refinancing rate steady at 0.05%. Euro depreciated against the USD on ECB policy and also provided relief from risk aversion in markets.
USD Index (DXY), which tracks the movement of the USD against six major currencies, gained by 0.62% on weekly basis and closed at levels of 99.57. USD started the week on a higher note as China’s fourth quarter GDP growth rate matched the expectations and the International Monetary Fund cut its global growth forecast.
China on Tuesday reported that the world’s second largest economy in the fourth quarter of 2015 grew at an annual rate of 6.9%, which is the slowest pace since 1990, but data was broadly in line with the government’s target of around 7%.
IMF on Tuesday cut global growth forecast for 2016 to 3.4% from 3.6% estimated earlier. IMF also slashed its 2017 global growth forecast to 3.6% from 3.8% estimated earlier. Nonetheless, it did not cut its growth outlook for India. The IMF projected 7.3% GDP growth for India in 2016 and 7.5% in 2017, levels unchanged from its earlier estimates.
USD came under pressure mid week as Oil prices fell to the lowest level since 2003, falling below 28 USD/bbl. The rout in the oil prices has sent demand for safe heaven assets higher and has added to the ongoing selling pressure on Brazilian Real and Russian Ruble. But sharp recovery in oil prices in the later part of the week helped Russian Ruble and Brazilian Real to pare weekly losses, although they remained in negative territory as Russian Ruble depreciated by 0.52% and Brazilian Real depreciated by 1.09% against the USD in last week.
However, in the later part of the week the pressure eased on USD as it found support from the release of upbeat U.S. economic data and from the growing expectations for monetary easing by the European Central Bank and Bank of Japan, which lead Euro to depreciate by 1.1% and Japanese Yen to depreciate by 1.52% against USD in the last week.
Bank of Japan Governor Haruhiko Kuroda commented on Thursday that he is not thinking of adopting a negative interest rate policy now, signalling that any further monetary easing will likely take the form of an expansion of its current asset-buying program.
U.S. Commerce Department on Wednesday reported that consumer prices fell by 0.1% in the month of December against the expectation for a flat reading. On yearly basis consumer prices were 0.7% higher. Core CPI rose by 0.1% against the expectation of a rise of 0.2%.
U.S. Commerce Department also reported that housing starts fell by 2.5% to 1.149 million units in the month of December from November’s total of 1.179 million units and against the expectation of a rise of 1.6% to 1.200 million.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 15th January rose by 10,000 to 293,000 from the previous week’s total of 283,000 against the expectation of a decline of 5,000 to 278,000.
Federal Reserve Bank of Philadelphia on Thursday reported that its manufacturing index improved to -3.5 in the month of January from December’s reading of -5.9 and against the expectation of -5.0.
U.S. National Association of Realtors on Friday reported that the existing home sales rose by 14.7% to 5.46 million units in the month of December against the expectation of a rise of 8.9%, followed by a decline of 10.5% to 4.76 million in November.
Asian currencies were largely higher against the USD last week as the demand for the safe heaven assets eased after ECB and Bank of Japan hinted on monetary easing. The sharp recovery in crude oil prices after touching its lowest level since 2003 also helped lower risk aversion. Australian Dollar appreciated by 2.01%, New Zealand Dollar appreciated by 0.46%, South Korean Won appreciated by 1.08%, Philippines Peso appreciated by 0.16%, Indonesian Rupiah appreciated by 0.47%, Indian Rupee depreciated by 0.04% against USD and appreciated by 1.37% against Euro, Chinese Yuan appreciated by 0.09%, Malaysian Ringgit appreciated by 2.42% and Thai Baht appreciated by 0.96%.