The USD Index (DXY), which tracks the movement of the USD against six currencies, rose by 0.92% in the last week and on yearly basis the index is up by 13.47%. USD gained due to strong monthly job data which is fuelling optimism over the strength of the country’s job market and is adding on to the pace of economy recovery. Fed would stick to its plan of hiking rates gradually and this would add strength to the USD.
In a report, the Labour Department said the U.S. economy added 252,000 jobs in December 2014, exceeding the expectations of 240,000 job additions. November’s figure was revised to a 353,000 gain from a previously estimated 321,000 rise. The report also showed that the U.S. unemployment rate for the month of December was down by 0.2 percentage point to 5.6% compared to last month and better than street expectation of 5.7%. US Jobless claims for the week ending 3rd January fell by 4,000 to 294,000 from the previous week total of 294,000, slightly higher than expectations of 290,000.
On 7th January 2015, Fed released December FOMC minutes where it has reiterated that policy makers are unlikely to raise rates for “at least the next couple of meetings.” Fed officials expect that inflation will keep falling in near term due to lower energy prices and a stronger currency. Strong USD is making US imports cheaper and putting downward pressure on prices. Inflation data for the month of December will be released on 16th January.
Real appreciated by 2.33% last week against the USD after Brazil national statistics agency showed that inflation as measured by IPCA index for last year closed at 6.41%, the highest rate since 2011. Even though the last year’s rate surpassed the 2013 rate of 5.91%, it remains lower than the Central Bank’s inflation target ceiling of 6.5%. Brazil government also indicated that it will take all the necessary steps to keep inflation down.
Real in 2014 came under pressure due to economy slowdown and a widening budget deficit, which prompted Moody’s Investors Service to change Brazil’s credit outlook to negative. Real on yearly basis depreciated by 9% against the USD.
Euro depreciated by 1.33% on weekly basis against the USD and posted its fourth straight week of decline. Euro touched nine year low levels on Wednesday and is currently trading at a levels of Eur 1.18. Euro declined due to weak inflation data that fell for the first time since 2009 and is increasing pressure on the European Central Bank (ECB) to loosen its monetary policy. Eurozone consumer prices fell by 0.2% for the month of December, which is below market expectation of fall of 0.1% and lower than November’s 0.3% rise.
Russian Ruble posted weekly loss of 5.30% against the USD extending its yearly decline to 46.44%. Ruble declined as oil fell below 50 USD/bbl.
Fitch Ratings has downgraded Russia’s credit rating to lowest investment grade due to plummeting oil prices and the sanctions imposed by US and EU over Ukraine, which triggered the worst currency crisis since the country’s 1998 default. Agency also stated that plunging oil prices has exposed Russia’s close link between growth and oil.
Asian currencies were majorly up on weekly basis against the USD due to the Fed in its FOMC minutes stating that inflation will be a concern in near term. Australian Dollar rose by 1.42%, Japanese Yen rose by 1.69%, South Korean Won rose by 1.26%, Indian Rupee rose by 1.56% and Thai Baht rose by 0.37% whereas Philippines Peso declined by 0.32%, Indonesian Rupiah declined by 1.52% and Chinese Yuan by 0.02%.