USD had a strong week last week, broadly trading higher against the major currencies. In a period of global monetary easing, the Fed maintaining a rate hike policy stance makes USD relatively attractive.
The Federal Reserve and Bank of Japan monetary policy announcements and Q2 GDP reports from the U.S., U.K. and Eurozone are expected to be the major drivers for global currency markets in the coming weeks. The Federal Reserve is expected to maintain status quo on rates in its upcoming monetary policy this week. The last meeting was held before Brexit and since then U.S. markets have functioned well. The June nonfarm payrolls rebounded strongly after May’s disappointing report. However, Fed seems to be in no rush to raise interest rates on Brexit worries but the FOMC Statement could indicate optimism for the US economy that will be positive for the USD.
USD started the week on a high note after the release of better than expected housing data and on IMF economic forecast report. USD continued its upward trend throughout the week largely on the back of more upbeat U.S. economic data. USD Index (DXY), which tracks the movement of the USD against six major currencies was higher by 0.92% week on week closing at levels of 97.47.
The International Monetary Fund (IMF) released its updated global forecasts on Tuesday, reducing the projection for growth in the world economy in 2016 to 3.1%, from the prior forecast of 3.2%, though expecting a rebound to 3.4% in 2017.
The IMF did cut the U.S. growth forecast to 2.2%, from the prior 2.4%, but said that the Brexit impact on the U.S. economy would be muted and explained that the reduction was due to the weaker than expected reading from first quarter GDP. The U.K. was hardest hit with the IMF cutting its forecast to 1.7% from the prior 1.9% for this year and slashing 2017 growth to 1.3% from April’s estimate of 2.2% due to Brexit. The Eurozone did not escape unscathed as 2017 growth expectations were cut to 1.4% from the prior 1.6%.
U.S. Commerce Department on Tuesday reported that housing starts jumped 4.8% to 1.189 million units against the expectations for an increase to 1.17 million. U.S. building permits increased by 1.5% to 1.153 million units marginally above forecasts for an increase to 1.15 million.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 16th July fell by 1,000 to 253,000 from the previous week’s total of 254,000 against the expectation of a rise of 11,000 to 265,000.
Federal Reserve Bank of Philadelphia reported that its manufacturing index fell to -2.9 this month from June’s reading of 4.7 against the expectation for the index to improve to 5.0.
Data released on Thursday showed that U.S. existing home sales increased by 1.1% in the month of June to 5.57 million units from the 5.51 million units in May against the expectation for a 0.5% decline to 5.48 million units.
Euro fell to a monthly low against the USD on Friday after shootings in Munich. Economic data from the Eurozone was better than expected with the flash PMIs ticking up, supporting the ECB’s wait and see attitude. The ECB, in its policy meet last week, left its benchmark interest rate unchanged at a record low of 0.0%, which was in line with the market expectation.
ECB President Mario Draghi in a press conference said that the Eurozone recovery faces several headwinds and the risks remain inclined toward downside, citing the UK referendum, slowing emerging markets and the slow pace of structural reforms as key threats. Euro depreciated by 0.53% against the USD last week.
GBP depreciated by 0.63% against USD last week. GBP largely came under pressure after IMF cut the country’s GDP growth forecast for 2016 and 2017. However, there were a number of economic reports released last week, which were largely mixed. Consumer prices rose in line with expectations, wage growth accelerated and employment increased sharply. U.K. international trade secretary commented that the ministry could target 1st Jan 2019 as a potential Brexit date.
Asian currencies were largely down on broad USD strength. Australian Dollar depreciated by 1.53%, New Zealand Dollar depreciated by 1.67%, Japanese Yen depreciated by 1.18% against the USD and by 0.7% against the Euro. South Korean Won depreciated by 0.07%, Philippines Peso depreciated by 0.76%, Indonesian Rupiah appreciated by 0.01%, Indian Rupee depreciated by 0.02% against the USD and appreciated by 1.08% against the Euro, Chinese Yuan appreciated by 0.21%, Malaysian Ringgit depreciated by 2.83% and Thai Baht appreciated by 0.03%.