Friday’s unambiguously strong nonfarm payrolls report sent the USD soaring against all of the major currencies as it bolstered expectations that the Federal Reserve will raise interest rates as soon as this year. GBP crashed on the heels of the Bank of England’s monetary policy announcement but there was little follow through selling post the fall.
USD crawled higher at the start of the week after recording its poorest weekly performance in three months in the week prior to last. USD rose even though data released on Monday showed that the manufacturing activity in the U.S. fell more than expected in July. USD had been rallying on Brexit and had posted five weeks of consecutive gains, which was the strongest run in 1-1/2 years. USD came under pressure in the week prior to last after the Federal Reserve gave no hints of any near-term interest rate rise and also on disappointing set of U.S. growth data.
USD Index (DXY), which tracks the movement of the USD against six major currencies, was up by 0.70% week on week closing at levels of 96.19. USD gained sharply on Friday after data showed that the U.S. economy added far more jobs than expected last month, which boosted optimism over the strength of the economy. U.S. Labour Department reported that the U.S. economy added 255,000 jobs in the month of July against the expectation of 180,000 jobs, followed by 292,000 jobs added in the month of June. The report also showed that the U.S. unemployment rate remained unchanged at 4.9% in July. Average hourly earnings were up 2.6% compared with a year earlier.
Institute for Supply Management on Monday reported that its index of manufacturing activity dropped to 52.6 in the month of July from June’s 53.2 against the expectation for the index to tick down to 53.0.
U.S. Commerce Department on Tuesday reported that personal spending increased 0.4% in the month of June against the expectation of an increase of 0.3%. U.S. Household spending had also climbed 0.4% in the month of May. Personal income rose 0.2% against the expectation of 0.3% rise.
Institute of Supply Management on Wednesday reported that its non-manufacturing purchasing manager’s index fell to 55.5 in the month of July from 56.5 in June against the expectation for the index to drop to 56.0.
ADP reported that the U.S. private sector added 179,000 jobs in the month of July surpassing expectations for an increase of 170,000 followed by addition of 176,000 private sector jobs in June.
U.S. Census Bureau on Thursday reported that factory orders decreased by 1.5% in the month of June against the expectation for a decline of 1.8%, followed by 1.2% decline in May.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 30th July rose by 3,000 to 269,000 from the previous week’s total of 252,000 against the expectation of a decline of 1,000 to 265,000.
GBP depreciated by 1.19% against the USD last week. GBP crashed after the BoE over delivered but losses were limited after Governor Mark Carney’s comment. He stated that this early and comprehensive multistep approach was aimed at reducing uncertainty, bolstering confidence and supporting the necessary adjustments in the U.K. economy.
The Bank of England on Thursday cut rates for the first time in over seven years by 25 bps from 0.5% to 0.25% and slashed growth forecasts and launched a new monetary policy weapon in the battle to stop a post-Brexit slump in the U.K. The BoE made its biggest quarterly downgrade of growth forecasts, reducing expectations for 2017 growth from 2.3% to 0.8%, citing “substantial uncertainty” after the referendum in June which resulted in Brexit.
BoE also announced a new Term Funding Scheme worth up to GBP 100 billion (USD 132 billion) and the purchase of up to GBP 10 billion in U.K. corporate bonds and also expanded its bond buying program which is also known as quantitative easing by GBP 60 billion to GBP 435 billion.
Japanese Yen was highly volatile throughout the week but managed to post weekly gains against the USD, appreciating by 0.24%. Japanese Yen surged to a more than three weeks high against the USD on Tuesday after Japanese Prime Minister Shinzo Abe’s cabinet announced a fresh stimulus package but then traversed a weak path after Bank of Japan minutes from June meeting released on Wednesday suggested that the impact of negative interest rates need to be assessed.
Japanese Prime Minister Shinzo Abe’s cabinet on Tuesday approved a 28 trillion Yen (USD 274.4 billion) government stimulus package. The USD 274 billion stimulus is one of the Japanese government’s largest since the Financial Crisis in 2008 and comes amid growing sentiment that Japan’s economy will need to rely upon fiscal, not monetary policy in order to stave off deflation.
Asian currencies were largely mixed last week. Australian Dollar appreciated by 0.3%, New Zealand Dollar depreciated by 0.76%, Japanese Yen appreciated by 0.24% against the USD and by 1.05% against the Euro. South Korean Won appreciated by 0.86%, Philippines Peso appreciated by 0.51%, Indonesian Rupiah depreciated by 0.04%, Indian Rupee appreciated by 0.33% against the USD and depreciated by 0.08% against the Euro, Chinese Yuan depreciated by 0.38%, Malaysian Ringgit appreciated by 0.91% and Thai Baht depreciated by 0.88%.