Fed raised its benchmark rate by 25bps in its meeting that ended on the 16th of December 2015. Fed forecast that rates could be around 1.25% to 1.5% by end of 2016. The Fed also increased the rate it pays on reverse repos from 0.05% to 0.25% and the rate it pays on excess bank reserves from 0.25% to 0.5%.
USD touched its two-week high levels post FOMC meet. Fed rate hike along with upbeat U.S. economic data have helped the USD to strengthen in the last week. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 1.17% on weekly basis and closed at levels of 98.70.
USD is likely to see stability at higher levels and is not likely to strengthen on a sustained basis as the market is largely overbought USD. Commodity currencies were hit hard post Fed decision, which took a toll on a range of commodities from oil to base metals and gold. Currencies of emerging markets where economies are not hit by weak commodity prices will see gains as markets take out shorts.
U.S. Commerce Department on Tuesday reported that consumer prices on yearly basis rose by 0.5% in the month of November against the expectations of a rise of 0.4% followed by 0.2% rise in October. Core CPI rose by 0.2% in-line with the expectations.
Federal Reserve Bank of New York on Tuesday said that its general business conditions index improved to -4.6 in the month of December against the expectation of rise to -0.6 followed by -10.7 in November.
U.S. Commerce Department on Wednesday reported that housing starts sharply rose by 10.5% to hit 1.173 million units in the month of November against the expectation of a rise of 6.6% to 1.135 million units followed by 1.062 million units in October. Number of building permits issued rose by 11.0% to 1.289 million units in the month of November beating the market expectation of a decline by 1% to 1.150 million units followed by 1.161 million units in October.
U.S. industrial production declined by 0.6% in the month of November, disappointing expectations for a decline of 0.1%.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 11th December fell by 11,000 to 271,000 from the previous week’s total of 282,000 against the expectation of a fall by 7,000 to 275,000.
Euro depreciated by 1.07% last week against USD. Euro came under pressure after Eurostat reported on Wednesday that Euro zone consumer price inflation rose by 0.2% in the month of November against the expectation of 0.1% followed by a rise of 0.1% in October. The rate has now been below 1% for 26 straight months, well under the European Central Bank’s target of 2%.
Brazilian Real depreciated by 2.77% last week against USD. Major decline came on Friday after President Dilma Rousseff replaced finance minister Joaquim Levy with her close aide Nelson Barbosa who earlier was the Planning Minister.
Brazil is struggling to turn around its economy amidst a growing political crisis marked by corruption scandals and arrests of top lawmakers and businessmen,. The country was stripped of its investment grade status by a second major rating agency last week. The move by Fitch to downgrade Brazil to junk has triggered a sell-off in Brazilian assets as some large investment funds are required to sell securities if two agencies rate it junk.
Russian Ruble depreciated by 0.53% last week against USD. Ruble touched its all-time low level against USD on Thursday. Russia’s central bank has kept the benchmark interest rates at 11% as high inflation risks continued to persist. Crude prices, which have a high correlation with the strength of the Ruble, have dropped by almost 7% in two days between Wednesday and Thursday.
Asian currencies were largely mixed against the USD last week. Australian Dollar depreciated by 0.18%, New Zealand Dollar appreciated by 0.16%, Japanese Yen depreciated by 0.12%, South Korean Won depreciated by 0.3%, Philippines Peso depreciated by 0.08%, Indonesian Rupiah appreciated by 0.54%, Indian Rupee appreciated by 0.74% against USD and by 2.43% against Euro, Chinese Yuan depreciated by 0.40%, Malaysian Ringgit appreciated by 0.25% and Thai Baht appreciated by 0.03%.