Indian Rupee (INR) depreciated by 0.48% against the USD last week on Brexit fears. The INR will see more falls this week on the back of Dr. Raghuram Rajan indicating that he will not take up second term as RBI governor. Dr. Rajan had a lot of credibility with currency markets given his consistent approach to strengthening the internal value of the INR and his leaving the post would weaken currency market sentiments. The INR could trend towards all time lows of Rs 68.80 on Dr Rajan’s exit and if Brexit fears gain ground.
USD last week ended in negative territory with the USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.39% on weekly basis closing at levels of 94.21. The decline largely came after the U.S. Federal Reserve held interest rates steady last week, which was in line with the expectation, and lowered its economic growth forecasts for 2016 and 2017. Fed did signal that it still plans two interest rate hikes this year as it expects the U.S. jobs market to strengthen.
Janet Yellen in a press briefing after the meeting said that one reason for maintaining the status quo was uncertainty over the upcoming referendum to determine whether Britain would leave the European Union or not.
USD started the week on a weak note as market participants were cautious ahead of the two days FOMC meet as U.S. jobs report for the month of May had pushed back the expectations on the timing of the next rate hike. However, USD found interim support after some encouraging U.S. economic data.
U.S. Commerce Department on Wednesday reported that retail sales increased by 0.5% in the month of May against the expectation of a rise of 0.3% followed by 1.3% rise in April. Core retail sales, which excludes automobile sales, increased by 0.4% in the month of May which was largely in line with the expectation followed by a rise of 0.8% in April.
U.S. Commerce Department also reported that producer prices rose by 0.4% in the month of May against the expectation of a rise of 0.1%, which was similar to the level last seen in April. The producer price index was down by 0.1% from a year earlier, which was in line with the expectations. Core producer prices, which excludes food and energy, rose by 0.3% in the month of May against the expectation of a rise of 0.1%.
The New York Federal Reserve reported that its Empire State manufacturing index rose to 6.01 in the month of June against the expectation for the index to improve to -4, followed by a reading of -9.02 in May.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 11th June increased by 13,000 to 277,000 from the previous week’s total of 264,000 against the expectation of a rise of 6,000 to 270,000.
U.S. Commerce Department on Thursday reported that consumer prices rose 0.2% in the month of May against the expectation of a rise of 0.3%. On yearly basis consumer prices were 1.0% higher last month against the expectations for a rise of 1.1%. Core CPI, which excludes food and energy costs, increased in line with the expectation by 0.2% in the month of May.
U.S. Commerce Department on Friday reported that housing starts declined by 0.3% to 1.164 million units in the month of May from April’s total of 1.167 million units against the expectation of decline to 1.150 million. The number of building permits issued increased by 0.7% to 1.138 million units from 1.130 million against the expectation of a rise to 1.150 million units.
Japanese Yen appreciated by 2.70% against the USD and by 2.48% against the Euro last week. The sharp appreciation of the Yen came after Bank of Japan (BoJ) left its monetary policy unchanged last week. Fears of a potential Brexit continued to dampen market sentiments boosting the demand for safe haven assets. BoJ officials during the meeting voted to continue expanding its monetary base at an annual rate of 80 trillion Yen. BoJ also flagged the British referendum on 23rd June as a key geopolitical threat to the Japanese economy, along with the “European debt problem”.
Euro remained volatile throughout the week but manged to end the week in positive territory against the USD, appreciating by 0.23% on weekly basis. The volatility in Euro was largely due to the uncertainty over the potential consequences of Brexit
Asian currencies were largely down against the USD last week on Brexit worries. Australian Dollar appreciated by 0.19%, New Zealand Dollar depreciated by 0.09%, South Korean Won depreciated by 0.66%, Philippines Peso depreciated by 0.71%, Indonesian Rupiah depreciated by 0.34%, Indian Rupee depreciated by 0.48% against USD and by 0.07% against Euro, Chinese Yuan depreciated by 0.37%, Malaysian Ringgit depreciated by 0.71% and Thai Baht appreciated by 0.03%.