The Friday terrorist attack on the people of Paris will lead to risk aversion globally as investors worry about more such attacks. The Euro will lead the currency weakness as the ECB will keep pumping in liquidity to calm nervous markets even as the Fed contemplates raising rates. EM currencies including the INR will also see broad weakness on global risk aversion. USD will trend higher on flight to safety.
USD last week hovered around its seven month high levels on the back of strong U.S. monthly October 2015 job report, which has heightened the Fed December rate hike expectations. USD came slightly under pressure last week after the Fed chair gave no indication on the timing of the potential rate hike, but later USD recovered and pared some of its losses on strong U.S. consumer sentiment data. USD Index (DXY), which tracks the movement of the USD against six major currencies, marginally weakened by 0.17% on weekly basis and closed at levels of 99.00.
Strong U.S. consumer sentiment data offset a string of weaker U.S. economic reports released earlier on Friday and added to the expectations for December rate hike by the Federal Reserve, which is expected to drive USD higher in coming weeks.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 7th November remained unchanged from the previous week’s total of 276,000 and against expectations of a fall of 6,000.
University of Michigan on Friday reported that consumer sentiment index rose to 93.1 in the month on November against the expectation of 91.5 followed by 90.0 in October.
Separate report showed that U.S. retail sales rose by 0.1% in the month of October against the expectations of a rise of 0.3% followed by 0.1% gain in September. Core retail sales rose by 0.2% against the expectation of a rise of 0.4%.
U.S. producer price inflation declined to 0.4% in the month of October against the expectations of a rise of 0.2% followed by 0.5% decline in September.
Euro appreciated by 0.3% against the USD last week. Euro in the early part of the week weakened after reports surfaced that European Central Bank could cut its deposit rate deeper into negative territory in its December meeting. Euro gained majorly on Thursday on short covering at lower levels as markets went into the weekend.
Speaking to the European Parliament, ECB president Mario Draghi said that inflation dynamics had somewhat weakened and that a “sustained normalization” of inflation could take longer to achieve than thought.
Brazilian Real depreciated by 2.09% against USD last week. Real weakened on speculation that President Dilma Rousseff had decided to replace Finance Minister Joaquim Levy. Heightened expectation of Fed rate hike in later 2015 has brought high yielding currencies such as the Real under pressure.
Russian Ruble depreciated sharply by 3.35% against USD last week. The decline came after economic data showed that Russia’s GDP contracted in the third quarter by 4.1% followed by contraction of 4.6% in the second quarter. The recovery is expected to be slow due to western sanctions and sluggish growth in commodity prices. Brent crude oil prices last week, declined by 7.52% from 48.24 USD/bbl to 44.61 USD/bbl.
Asian currencies were mixed last week. Australian Dollar appreciated by 1.19%, New Zealand Dollar appreciated by 0.25%, Japanese Yen appreciated by 0.42%, South Korean Won depreciated by 1.86%, Philippines Peso depreciated by 0.36%, Indonesian Rupiah appreciated by 0.88%, Indian Rupee depreciated by 0.51% against USD and depreciated by 0.30% against Euro, Chinese Yuan depreciated by 0.32%, Malaysian Ringgit depreciated by 1.53% and Thai Baht depreciated by 0.20%.