USD strengthed on Friday on the back of a Fed committee member sounding out the possibility of rate hike as early as this month. Markets that were uncertain of rate cut this month on the back of below than expected August job numbers, suddenly reversed bets of no rate hike.
The USD came under selling pressure in the initial part of last week on U.S. August jobs report and on weak U.S. service sector data that dampened the expectations for a Fed rate hike this month. However, in the later part of the week USD got some breather as the number of people who filed for unemployment benefits last week fell to a six-week low and also on the heightened safe haven demand in the wake of a North Korean nuclear test. USD Index (DXY), which tracks the movement of the USD against six major currencies, declined by 0.53% week on week and closed at levels of 95.34.
Institute of Supply Management (ISM) on Tuesday reported that U.S. service sector activity grew at a slower pace than expected in August. ISM data showed that non-manufacturing purchasing manager’s index fell to 51.4 in the month of August from 55.5 in July against the expectation for the index to drop to 55.0.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 3rd September fell by 4,000 to 259,000 from the previous week’s total of 263,000 against the expectation of a rise of 2,000 to 265,000.
Euro appreciated by 0.69% against USD last week after the ECB left its benchmark interest rate at a record-low 0.0%, which was largely in line with the market expectations. The central bank also held its deposit facility rate unchanged at negative 0.4% and left its marginal lending rate at 0.25%.
Additionally, the ECB kept the size of its monthly quantitative easing program at 80 billion EuroS. The central bank reiterated that it is prepared to expand its monthly asset-purchase program beyond March 2017 if needed.
ECB also raised its 2016 growth forecast to 1.7% from 1.6%, but slightly lowered its 2017 forecast from 1.7% to 1.6%.
Japanese Yen appreciated by 1.2% against the USD last week. The gain came amid mounting skepticism that the Bank of Japan will roll out further easing measures at its upcoming policy review later in the month.
BoJ Governor Haruhiko Kuroda indicated on Monday that he is prepared to ease monetary policy further but also acknowledged that negative interest rates could undermine confidence in Japan’s banking system.
Data in Japan showed that gross domestic product rose by 0.2% in the second quarter, which was above expectations for a flat reading.
Asian currencies were largely mixed against the USD last week. Australian Dollar depreciated by 0.42%, New Zealand Dollar appreciated by 0.52%, Japanese Yen appreciated by 1.2% against the USD and by 0.53% against the Euro. South Korean Won appreciated by 1.72%, Philippines Peso depreciated by 1.11%, Indonesian Rupiah appreciated by 1.06%, Indian Rupee appreciated by 0.22% against the USD and depreciated by 0.5% against the Euro, Chinese Yuan depreciated by 0.07%, Malaysian Ringgit appreciated by 0.42% and Thai Baht depreciated by 0.74%.