Indian Rupee depreciated by 0.15% against USD but appreciated by 1.12% against Euro last week. The INR reacted to the 13th November 2015 terror attack on Paris and also to a rising expectation of a Fed rate hike in December. However, the markets are seemingly inclined to a positive outcome of a Fed rate hike as it removes near term uncertainty. The INR could well end the year with a strong rally post the Fed rate hike as markets gain confidence on the world economy.
USD rallied in the early part of the week on growing expectations for a December rate hike by the Federal Reserve, which continues to give support to the USD. U.S. economic data and Fed October FOMC minutes have added to the rising expectation of interest rate hike in December by the Fed.
Fed minutes released on Wednesday showed that most of the Fed officials believe the conditions for raising interest rates could be met before its December meeting. The minutes also stated that “While no decision had been made, it may well become appropriate to initiate the normalization process at the next meeting”.
Federal Reserve Bank of New York on Monday reported that its general business conditions index improved to -10.7 in the month of November against the expectation of -6 followed by the reading of -11.4 in October
USD sharply rose on Tuesday after U.S. Commerce Department reported upbeat U.S. inflation data, which has added to the rising expectation that Fed will act in its December FOMC meet. Data showed that consumer prices increased by 0.2% in the month of October, which was in-line with the expectation followed by a decline of 0.2% in September. On yearly basis consumer prices were up by 0.2% against the expectation of 0.1% rise. Core consumer prices rose by 0.2% in the month of October, again in-line with the expectations.
U.S. Commerce Department on Wednesday reported that U.S. housing starts declined by 11% to 1.060 million units in the month of October against the expectation of 3.9% to 1.160 million units followed by 1.191 million units in September.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 14th November declined by 5,000 to 271,000 from the previous week’s total of 276,000, which was in-line with the expectation.
Euro depreciated by 1.18% against the USD last week. Euro is under pressure from heightened expectations that the European Central Bank will enlarge its stimulus program in its December policy meeting, aimed at boosting price growth in the Euroarea.
ECB president Mario Draghi in his speech at the Frankfurt European Banking Congress on Friday gave his strongest indication that the bank will approve further easing measures in December, most likely by moving its deposit rate deeper into negative territory.
The minutes from the ECB’s November meeting showed that inflation in the Eurozone remained well below the bank’s target, in spite of numerous easing measures implemented by the bank in recent months to inject liquidity into the system.
The Euro also was under pressure amid concerns that the terrorist attacks in Paris could hamper the already weak economic recovery in the region.
Data released during the week showed that index of Eurozone economic sentiment declined to a 12-month low of 28.3 in the month of November against the expectation of 35.2 followed by 30.1 in October.
Brazilian Real appreciated by 3.88% against USD last week. The gain came after congress upheld presidential veto of a bill that would have cost the government an additional USD 9.5 billion in wage payments by 2019.
Russian Ruble appreciated sharply by 3.09% against USD last week. The strength in the Ruble came in the later part of the week when crude oil prices bounced back after touching sub 40 USD/bbl twice during the week. Brent crude oil prices last week, gained by 0.11% from 44.61 USD/bbl to 44.66 USD/bbl. The week before, the Ruble exhibited sharp depreciation on contraction in the Russia’s gross domestic product
Asian currencies were mixed last week. Australian Dollar appreciated by 1.57%, New Zealand Dollar appreciated by 0.37%, Japanese Yen depreciated by 0.16%, South Korean Won appreciated by 0.80%, Philippines Peso appreciated by 0.17%, Indonesian Rupiah appreciated by 0.46%, Indian Rupee depreciated by 0.15% against USD but appreciated by 1.12% against Euro, Chinese Yuan depreciated by 0.17%, Malaysian Ringgit appreciated by 2.16% and Thai Baht appreciated by 0.48%.
Yen came under pressure during the week as data showed that Japan’s economy contracted at an annual rate of 0.8% in the third quarter, after a 1.2% contraction in the previous quarter, placing the country into a technical recession. Weak GDP data has added pressure on the Bank of Japan to step up its monetary easing measures. However Bank of Japan on Thursday kept its monetary policy unchanged, which helped the Yen to pare some of its early week decline.