USD ended lower for the second consecutive week against most major currencies touching its multi-week lows versus the Euro, British Pound and Japanese Yen. USD Index (DXY), which tracks the movement of the USD against six major currencies, was down by 1.27% week on week closing at levels of 94.51. USD declined on weak U.S. economic data and on FOMC minutes released last week. The minutes dampened expectations for Federal Reserve rate hike this year.
Fed’s latest FOMC minutes showed that the committee did not see any price pressures suggesting that rate hikes may not be probable this year. However, New York Fed President William Dudley’s statement of a rate hike as early as September was in contrary with the FOMC minutes.
The U.S. economy has outperforming its peers and the Federal Reserve is the only major central bank not in easing mode, which had driven the USD higher in the previous month. The recovery in the U.S. labour market has heightened the expectation for a Fed rate hike in 2016. However, USD has come under broad selling pressure in recent weeks after a string of weak U.S. economic reports, which has fuelled concerns over the strength of the economy.
USD started the week on a lower note as data released on Monday showed that business activity among New York manufacturers declined in August. The Empire State manufacturing index fell to -4.2 from July’s 0.55 against the expectation for the index to improve to 2.5. The report underlined concerns over the outlook for the economy after weaker than expected reports on U.S. retail sales and producer prices.
U.S. Commerce Department on Tuesday reported that annual inflation in the U.S. rose by 0.8% in the month of July, which was slightly below expectations for an increase of 0.9% and following 1.0% rise in June. Consumer price inflation in the U.S. remained unchanged on a month on month basis in July against the expectation for a rise of 0.1%.
U.S. housing starts rose by 2.1% to 1.211 million units in the month of July against the expectation of a decline of 0.8%. The number of building permits issued declined by 0.1% to 1.152 million units from 1.153 million against the expectations for a rise of 0.6%. On a more positive note, U.S. industrial production increased by 0.7% last month, better than expectations for a gain of 0.3%.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 13th Aug fell by 4,000, remaining in a territory consistent with a solid labour market, to 262,000 from the previous week’s total of 267,000 against the expectation of a decline of 1,000 to 265,000.
USD regained some ground on Friday on upbeat initial jobless claims data released on Thursday. USD received further support after Federal Reserve Bank of Philadelphia on Friday reported that its manufacturing index rose to 2.0 in the month of August from July’s reading of minus 2.9. August reading was in line with the expectation.
San Francisco Fed President John Williams joined the club along with New York Fed President William Dudley and Atlanta Fed President Dennis Lockhart, saying that if the U.S. central bank waited too long to raise rates, it could be costly for the economy and that a possible rate hike in September should be in play, signalling support for a U.S. interest rate hike in the coming months.
Japanese Yen appreciated by 1.08% against USD last week. The demand for Yen got a boost after Fed FOMC minutes weakened the USD sentiment for market participants who were expecting a more hawkish stance from the Fed. Further, Yen got support from the release of July trade surplus data, which was almost unchanged at JPY 0.32 trillion, crushing the estimate of JPY 0.14 trillion.
Japan reported second quarter GDP, which showed a gain of 0.2% year-on-year against the expectation of a gain of 0.7%, on quarterly basis GDP remained flat against the expectation of 0.2% rise.
Asian currencies were largely mixed last week. Australian Dollar depreciated by 0.33%, New Zealand Dollar appreciated by 1.04%, Japanese Yen appreciated by 1.08% against the USD but depreciated by 0.41% against the Euro. South Korean Won depreciated by 1.29%, Philippines Peso appreciated by 0.45%, Indonesian Rupiah depreciated by 0.34%, Indian Rupee depreciated by 0.26% against the USD and depreciated by 1.82% against the Euro, Chinese Yuan depreciated by 0.26%, Malaysian Ringgit appreciated by 0.29% and Thai Baht appreciated by 0.39%.