U.S. Federal Reserve is scheduled to hold its last policy meeting for the year 2016 on December 13-14 where it is highly expected that it will hike rates by 25bps, the first since December 2015. Fed would signal a slow pace of rate hikes given that the job market is seeing more people staying out leading to drop in Unemployment rate and wage growth slipping. USD will stay strong but the pace of strengthening will slow. USD index is trading at 14 year highs on the back of the resilience of the US economy and on expectations of higher growth on Trump’s policies.
U.S. jobs report for the month of November saw job addition in the U.S. economy come in less than expected and was accompanied by a drop in average hourly earnings. The fall in wages was surprising and probably the weakest component of the report leading the USD to decline after posting three consecutive weekly gains. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.71% on a week on week basis and is at a level of 100.77.
U.S. Labour Department on Friday reported that the U.S. economy added 178,000 jobs in the month of November against the expectations for an increase of 200,000, followed by 142,000 job additions in October. The unemployment rate fell to 4.6% in the month of November from 4.9% in October against the expectations for an unchanged reading. The average hourly earnings slipped by 0.1% in the month of November against the expectation for a 0.2% rise, followed by an increase of 0.4% in October.
USD started the week on a high note as GDP data released on Tuesday showed that the second estimate of third quarter U.S. gross domestic product rose by 3.2%, up from the initial reading of a 2.9% growth and against the expectation for a smaller upward revision to 3.0%. U.S. Conference Board reported that its consumer confidence index rose to 107.1 in the month of November from a reading of 100.8 in October against the expectation for the index to increase to 101.2. The upbeat data added to the optimism over the outlook of the U.S. economy amid expectations that increased fiscal spending and tax cuts under the Trump administration will spur economic growth and inflation. The strong report also supported the case for Fed’s December rate hike.
On Wednesday, USD gained support after Organization of the Petroleum Exporting Countries reached an agreement on an oil output cut by 1.2 million barrels a day, sending oil prices sharply higher, the move was aimed at reducing global oversupply and to shore up prices, which added to the expectation that higher oil prices will add to the U.S. inflation expectations. (Read our analysis on Case for Oil is Only Getting Weaker). The sharp surge in oil prices post the decision of output cut has led currencies of commodity driven economies like Russian Ruble to appreciate against the USD. Russian Ruble appreciated by 1.62% against the USD last week.
U.S. Commerce Department on Wednesday reported that personal spending increased by 0.3% in the month of October against the expectations of 0.5% gain and personal income rose by 0.6% in the month of October against the expectations of 0.4% gain.
U.S. National Association of Realtors on Wednesday reported that pending home sales rose by 0.1% in the month of November against the expectation for an increase of 0.2%. The report came after U.S. payroll processing firm ADP reported that non-farm private employment rose by 216,000 in the month of November against the expectation for an increase of 165,000.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 26th November increased by 17,000 to 268,000 from previous week’s total of 251,000 against the expectation of a rise of 2,000 to 253,000.
Institute for Supply Management said its manufacturing activity index rose to 53.2 last month from October’s reading of 51.9. Analysts had forecast a smaller increase to 52.2.
Asian currencies closed mixed against the USD. Australian Dollar appreciated by 0.19%, New Zealand Dollar appreciated by 1.39%, Japanese Yen depreciated by 0.26% against the USD and by 1.04% against the Euro. South Korean Won appreciated by 0.41%, Philippines Peso appreciated by 0.40%, Indonesian Rupiah appreciated by 0.1%, Indian Rupee appreciated by 0.36% against the USD and depreciated by 0.10% against the Euro, Chinese Yuan appreciated by 0.56%, Malaysian Ringgit appreciated by 0.11% and Thai Baht depreciated by 0.08%.