Barring the unexpected news that the FBI has re-opened its investigation into Hillary Clinton’s emails case, the past week has been a great one for the USD with Friday’s stronger-than-expected third-quarter GDP report adding fuel to the market’s optimism on the currency. USD touched its nine month high level at the start of the week but later pared some of its gains and ended the week marginally down. USD Index (DXY), which tracks the movement of the USD against six major currencies, fell by 0.35% on a week on week basis and is at a level of 98.35.
San Francisco Fed President John Williams said at a mortgage conference that “it makes sense to get back to a pace of gradual rate increases, preferably sooner rather than later.” comments followed recent hawkish talk from central bank officials including New York Fed President William Dudley and Fed Vice Chair Stanley Fischer, which prompted investors to price in an interest rate increase this year.
USD started the week on high note on Fed rate hike optimism as market participants continued to raise their bets on the USD for a fourth consecutive week. Chicago Fed President Charles Evans said on Monday that Fed might raise rates three times between now and the end of 2017, so long as inflation expectations and the labour market continued to improve. Further, USD was boosted during the week by the release of strong U.S. economic data and recent opinion poll ahead of the 8th November U.S. presidential election, which has favoured Democratic candidate Hillary Clinton over Republican Donald Trump.
Data released on Monday showed that U.S. manufacturing activity levels reached a one-year high this month. Data showed that manufacturing purchasing managers’ index (PMI) rose to 53.2 in the month of October from the September reading of 51.5 and against the expectation of unchanged reading.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 22nd October fell by 3,000 to 258,000 from previous week’s total of 261,000 against the expectation of a fall of 6,000 to 255,000.
USD pared some of its gain on Friday after federal government data showed a deceleration in U.S. consumer spending in the third quarter, which overshadowed a stronger-than-expected overall economic growth reading. U.S. Commerce Department reported that GDP increased at a 2.9% annual rate, accelerating from a 1.4% pace in the second quarter which is the strongest growth rate since the third quarter of 2014. However, Consumer spending increased at a 2.1% rate, slowing from the second quarter’s robust 4.3% pace. Consumer spending accounts for more than two-thirds of U.S. economic activity.
Forex market is expected to see sharp movements this week with four monetary policy announcements (from US, Japan, Australia and UK) scheduled this week and U.S. Presidential election on 8th November. Fed rate decisions in November is not as important as the one in December as no change in monetary policy is expected but the market participants will be watching closely for any guidance that will set expectations for next month’s potential moves.
Bank of Japan Governor Haruhiko Kuroda told parliament that he saw no need to ease at its upcoming policy meeting, suggesting there will be no further monetary stimulus except in response to a big external shock as Japan’s core consumer prices fell by 0.5% in the month of September from a year earlier to mark the seventh straight month of decline.
Asian currencies were largely down last week against the USD. Australian Dollar depreciated by 0.12%, New Zealand Dollar appreciated by 0.03%, Japanese Yen depreciated by 0.9% against the USD and by 1.83% against the Euro. South Korean Won depreciated by 0.86%, Philippines Peso depreciated by 0.41%, Indonesian Rupiah depreciated by 0.07%, Indian Rupee appreciated by 0.16% against the USD and depreciated by 0.04% against the Euro, Chinese Yuan depreciated by 0.18%, Malaysian Ringgit depreciated by 0.5% and Thai Baht appreciated by 0.3%.