INR fell to levels last seen in August 2013 as ECB disappointed markets and US job numbers gave green signal for the Fed to raise rates mid December. INR fell to Rs 67 to the USD, just off 2.7% from all time lows of Rs 68.80 seen in August 2013. RBI intervened by selling USD to take up the INR from lows. The INR will stay under pressure as markets brace for a Fed rate hike.
Euro rallied last week and hit one-month highs against the USD after ECB measures fell short of market expectations. Market was expecting ECB to increase the size of its monthly quantitative easing program to 75 billion Euro from the current 60 billion Euro.
ECB in its 3rd December policy meet decided to cut its deposit facility rate to -0.3% from -0.20%. The main refinancing rate was left unchanged at a record-low 0.05%. ECB also held its marginal lending rate, the rate charged to banks when they borrow from the ECB, at 0.30%.
ECB President Mario Draghi in a press conference said that ECB would expand its bond-buying program beyond the current cut-off point of September 2016 until the end of March 2017 or beyond if necessary. ECB also extended the range of assets that are eligible for purchase and will now also buy regional and local government debt.
On weekly basis Euro appreciated by 2.72% against the USD. Euro gained by 3.06% on Thursday after ECB policy was announced, which is the biggest one-day gain for the Euro since March 2009.
Euro rallied on Thursday on short covering, as market participants had heavily shorted Euro-USD pair on growing expectations of policy divergence between ECB and Fed. Euro is likely to stay higher despite Fed rate hike as markets cover shorts.
USD started the week on a high note and had hovered around its multi-year high level throughout the week . USD was supported after a string of upbeat U.S. economic data released previous to last week, which has added to the expectations that the Fed will raise interest rates in its December FOMC meet.
Fed Chair Janet Yellen statement has further boosted the expectation that Fed is ready to act in its December FOMC meet, which is scheduled for 15th–16th December. Yellen said that the central bank was still on track to hike rates this month, citing “continued improvement in the labour market” and “confidence that inflation will move back to 2% target over the medium term.”
U.S. National Association of Realtors on Monday reported that pending home sales index rose by 0.2% in the month of November against the expectation of a gain of 1.5%.
Institute of Supply Management on Tuesday reported that its manufacturing PMI declined to a six-year low of 48.6 in the month of November against the expectation of 50.5, followed by 50.1 in October.
ADP on Wednesday reported that non-farm private employment rose by 217,000 in the month of November above the expectations for an increase of 190,000 followed by 196,00 in October.
U.S. Department of Labour on Wednesday reported that number of individuals filing for initial jobless benefits in the week ended 28th November rose by 9,000 to 269,000 from the previous week’s total of 260,000 against the expectation of a rise of 8,000 to 268,000.
US Census Bureau on Thursday reported that U.S. factory orders rose by 1.5% in the month of October against the expectation of a rise of 1.4% followed by -0.8% in September.
USD strengthened on Friday after stronger-than-expected U.S. monthly jobs report. Data showed that U.S. nonfarm payrolls rose by 211,000 in the month of November against the expectation of 200,000 followed by 298,000 in October. U.S. unemployment rate remained unchanged at 5.0% in the month of November from earlier month reading, which was in-line with the expectation.
Brazilian Real appreciated by 2.51% last week against USD. Asian currencies were largely mixed against USD last week. Australian Dollar appreciated by 2.03%, New Zealand Dollar appreciated by 3.28%, Japanese Yen depreciated by 0.25%, South Korean Won depreciated by 0.31%, Philippines Peso appreciated by 0.22%, Indonesian Rupiah depreciated by 0.24%, Indian Rupee appreciated by 0.10% against USD and depreciated by 2.44% against Euro, Chinese Yuan depreciated by 0.13%, Malaysian Ringgit appreciated by 0.69% and Thai Baht appreciated by 0.34%.
The Yuan fell on the speculation that People’s Bank of China will adopt further accommodative policy stance after disappointing data coming in from China. Manufacturing activity in China fell unexpectedly last month as PMI fell to an annual rate of 49.6 in the month of November and against the expectation of unchanged reading from the previous month reading of 49.8.