USD was highly volatile during last week on the changing expectation for a rate hike by the Federal Reserve in its upcoming policy meet scheduled this week. The comment made by a Federal Reserve official on Monday sparked fresh uncertainty over the timing of future rate hikes. However, better-than-expected U.S. inflation data released on Friday boosted the expectation for a rate hike and sparked a rally in USD, which helped the currency to post weekly gains against major currencies. USD Index (DXY), which tracks the movement of the USD against six major currencies, gained by 0.81% week on week and closed at levels of 96.11.
USD started the week on a flat note amid fresh hopes for a U.S. rate hike as soon as this month after Boston Fed President Eric Rosengren said that the U.S. economy has proven to be more resilient to exogenous risks and that “gradual tightening is likely to be appropriate”. But on Monday Fed Governor Lael Brainard warned against raising interest rates too quickly. He said that the “economic progress continues in the U.S., but the Fed would be wise to continue keeping policy loose”.
U.S. Commerce Department on Thursday reported that U.S. retail sales fell 0.3% in the month of August against the expectations for a 0.1% decline. It was the first decline in five months.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 10th September rose by 1,000 to 260,000 from the previous week’s total of 259,000 against the expectation of a rise of 6,000 to 265,000. It was the 80th straight week that claims remained below the 300,000 threshold, which is associated with robust labour market conditions
U.S. Department of Labour separately reported that U.S. producer prices were flat in the month of August against the expectation of an increase of 0.1%. Core PPI rose by 0.1% in the month of August, matching expectations.
U.S. Commerce Department on Friday reported that the consumer price index rose 0.2% in the month of August against the expectations for a 0.1% gain and after a flat reading in the previous month. On yearly basis consumer prices increased by 1.1% against the expectations for a gain of 1.0%.
Core CPI, which excludes food and energy costs rose by 0.3% in the month of August against the expectation for a 0.2% rise and after a 0.1% rise in July.
British Pound depreciated by 2% against USD last week amid revived concerns amongst investors about Brexit who are betting on another cut in UK interest rates this year. The Bank of England kept rates at record lows on Thursday but signalled that it would cut before the end of the year. BOE cut rates to 0.25% in early August and relaunched an asset-purchase programme to cushion the economic blow from Brexit.
Japanese Yen appreciated by 0.39% against USD last week. The gain came despite the fact that there is an expectation of further stimulus measures to be taken by BoJ in its upcoming policy meet scheduled this week as recent economic data showed further deterioration of the economy. (Read our analysis on Global Economic Data Analysis). But market participants doubt that the Bank of Japan (BOJ) would be able to weaken the Yen with more policy stimulus.
Asian currencies were largely down against the USD due to broad USD strength after U.S. inflation data was released on Friday. Australian Dollar depreciated by 0.66%, New Zealand Dollar depreciated by 0.79%, Japanese Yen appreciated by 0.39% against the USD and by 1.10% against the Euro. South Korean Won depreciated by 2.10%, Philippines Peso depreciated by 1.33%, Indonesian Rupiah depreciated by 0.36%, Indian Rupee depreciated by 0.46% against the USD and remained flat against the Euro, Chinese Yuan appreciated by 0.15%, Malaysian Ringgit depreciated by 1.41% and Thai Baht depreciated by 0.11%.