September was a very volatile month for the USD amidst changing expectations over rate hike by the Fed in its upcoming monetary policies. The divergent opinion made by Fed policymakers in the recent past and mixed data released throughout the month made going difficult for market participants to have any view on Fed rate hike. In the early part of the month the USD decline was slow and steady driven by disappointing non-farm payrolls but last week the selling gained momentum after the Federal Reserve left interest rates unchanged. USD Index (DXY), which tracks the movement of the USD against six major currencies, declined by 0.18% on a month on month basis and by 0.66% on a week on week basis.
USD started the week on a low note ahead of Fed FOMC and BoJ policy meet despite better than expected U.S. inflation data released prior to last week. USD started its sharp decline on Wednesday after BoJ and U.S. Fed left their respective interest rates unchanged.
USD is expected to stay volatile until the release of second set of U.S. economic data such as new home sales, consumer confidence, durable goods, GDP revisions, personal income and spending and September non farm payrolls, which could provide some guidance on rate hikes going forward.
Fed in its policy statement on the 21st of September signalled that rates would still rise but it needs to watch developments in the domestic and global economy before hiking rates.
Also, the Fed cut the number of rate increases it expects this year to one from two and projected a less aggressive rise in interest rates next year and in 2018. However, Fed policy members were divided over rate hikes indicating that the full committee was not in sync with the policy.
Japanese Yen appreciated by 1.26% against USD last week after BoJ bank kept rates steady at -0.1% in its policy meeting and refrained from expanding its asset purchase program but issued a plethora of fresh changes to its existing policy.
The BOJ eliminated the maturity range for its Japan government bond purchases and abandoned its target to increase the monetary base by 80 trillion Yen (USD 780 billion) a year and set a “yield curve control” under which it will buy or sell long-term government bonds to keep 10-year bond yields around current levels of 0%.
The Yen weakened sharply after BoJ unveiled policy changes but recovered immediately after investors became sceptical about whether the BoJ’s latest measures will be enough to boost inflation in the country.
U.S. Commerce Department on Tuesday reported that U.S. housing starts declined by 5.8% to 1.142 million units in the month of August from July’s total of 1.212 million units against the expectation of a decline of 1.7%. The number of building permits issued declined 0.4% to 1.139 million units in the month of August from 1.144 million in July against the expectation of a rise of 2.5% to 1.170 million units.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits fell to a two-month low level in the week ended 17th September. Data showed that the claims fell by 8,000 to 252,000 from the previous week’s total of 260,000 against the expectation of a rise of 2,000 to 262,000.
A separate report showed that U.S. existing home sales declined by 0.9% in the month of August to 5.33 million units from the 5.38 million units in July against the expectation of a rise of 1.1% to 5.45 million units.
Asian currencies were largely up against the USD. Australian Dollar appreciated by 1.76%, New Zealand Dollar depreciated by 0.33%, Japanese Yen appreciated by 1.26% against the USD and by 0.64% against the Euro. South Korean Won appreciated by 1.77%, Philippines Peso depreciated by 0.41%, Indonesian Rupiah appreciated by 0.57%, Indian Rupee appreciated by 0.50% against the USD and by 0.59% against the Euro, Chinese Yuan appreciated by 0.08%, Malaysian Ringgit appreciated by 0.41% and Thai Baht appreciated by 0.82%.