USD traded lower against most of the major currencies last week, particularly against the Japanese Yen. USD/JPY dropped from JPY 106.30 to below JPY 102 after the Bank of Japan announced a very modest increase in monetary stimulus. The Japanese economy deteriorating rapidly and the Yen strengthening, market participants were looking for a strong dose of easing by the BoJ. Unfortunately, the central bank offered the smallest amount of support by increasing ETF purchases and doubling its USD lending facility. This was the minimum that the market was expecting, BoJ did not cut interest rates, did not increase bond purchases or go for unconventional measures like helicopter money.
USD also came under pressure after Federal Reserve decided to leave its monetary policy unchanged last week. The release of downbeat economic data particularly Friday’s GDP number also weighed on the USD. USD Index (DXY), which tracks the movement of the USD against six major currencies, was sharply down by 1.99% week on week closing at levels of 95.53. Japanese Yen sharply appreciated by 3.99% against the USD last week.
The Federal Reserve left interest rates unchanged on Wednesday but said that the near-term risks to the U.S. economic outlook had diminished, opening the door to a resumption of monetary policy tightening this year. The statement also said that the economy had expanded at a moderate rate and job gains were strong in June. Policymakers said that they continue to closely monitor inflation data and global economic and financial developments but they also indicated less worry about possible shocks that could impact the U.S. economy.
GDP growth in the second quarter was significantly lower than expected. The economy expanded by only 1.2% in Q2, against the expectations for a 2.5% rise. First-quarter numbers were also revised lower to 0.8% from 1.1%.
The U.S. Commerce Department reported that durable goods orders fell by 4.0% in the month of June against the expectation for a decline of 1.1% followed by decline of 2.8% in May. Core durable goods orders, which exclude volatile transportation items, fell by 0.5% in the month of June against the expectation for a 0.3% gain
The National Association of Realtors (NAR) reported that its pending home sales index rose by 0.2% in the month of June against the expectation for an increase of 1.4% followed by a decline of 3.7% in May.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 23rd July rose by 14,000 to 266,000 from the previous week’s total of 252,000 against the expectation of a rise of 7,000 to 260,000.
Euro appreciated sharply by 1.79% against the USD last week. The gain majorly came on Friday after Euro soared by 0.88% on the back of broad-based USD weakness and on slightly better than expected economic data. The Eurozone economy expanded by 0.3% in the second quarter, which was in line with expectations while consumer prices rose 0.2%, slightly stronger than expected.
Asian currencies were largely mixed last week. Australian Dollar appreciated by 1.80%, New Zealand Dollar appreciated by 2.89%, Japanese Yen appreciated by 3.99% against the USD and by 2.15% against the Euro. South Korean Won appreciated by 1.27%, Philippines Peso depreciated by 0.11%, Indonesian Rupiah depreciated by 0.13%, Indian Rupee appreciated by 0.13% against the USD and depreciated by 0.72% against the Euro, Chinese Yuan appreciated by 0.67%, Malaysian Ringgit depreciated by 0.13% and Thai Baht appreciated by 0.59%.