USD gained last week and touched two month high levels. The gain came on the back of ECB looking to increase stimulus and on the back of release of some upbeat U.S. economic data. USD also gained strength on PBOC surprising global financial markets by cutting interest rates for the sixth time since November in another attempt to boost the economy.
ECB President Mario Draghi, post the policy meet last week, said that the central bank would look to increase stimulus in its December policy meet. ECB could increase the duration of its Euro 60 billion a month QE program from its end date of September 2016. ECB could also increase the size of the QE and also increase coverage of asset purchases. Deposit rate that is negtaive .20% could be cut further by 10bps.
PBOC lowered the one-year benchmark bank lending rate by 25 bps to 4.35%, effective from Oct. 24. The one-year benchmark deposit rate was lowered by 25 basis points to 1.50 percent. Reserve requirement ratio (RRR) was also cut by 50 bps for all banks, taking the ratio to 17.5% for the biggest lenders. The central bank in a major reform step allowed banks to set deposit rates.
USD is expected to stay strong despite Fed’s October policy meet scheduled this week. Recent release of mixed economic data has fuelled uncertainty over the timing of Fed’s interest rate hike. It is highly unlikely that Fed will raise interest rates in its forthcoming policy meet but may give some indication on the future timing.
USD started the week on a slightly higher note after China GDP data released on Monday showed that world’s second largest economy grew by annualized rate of 6.9% in the third quarter, slightly beating the expectation of 6.8% but down from 7% reported in the second quarter.
U.S. Commerce Department on Tuesday reported that U.S. housing starts rose by 6.5% to 1.206 million units in the month of September against the expectation of 1.140 million units, followed by 1.132 million units in August.
On Thursday USD gained sharply after ECB policy. ECB President Mario Draghi stated that central bank will re-examine its monetary policy in December, hinting at the possibility for further easing measures. He also added that ECB’s quantitative easing program is set to run until 2016 or beyond if necessary citing that downside risks have emerged for growth and the inflation outlook in the euro area.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 17th October rose by 3,000 to 259,000 from the previous week’s total of 256,000 and against expectations of a rise of 9,000.
U.S. National Association of Realtors reported that existing home sales rose by 4.7% to 5.55 million units in the month of September against the expectation of a rise of 1.4% to 5.38 million units, followed by 5.30 million units in August.
Euro depreciated by 2.91% against the USD last week after data released showed that rate of inflation in the Euro area turned negative in September for the first time since the ECB launched its trillion Euro asset purchase program in March. Euro declined sharply in the later part of the week after ECB policy meet outcome.
Brazilian Real appreciated by 1.22% against USD last week after central bank maintained interest rates at 14.3% despite a higher forecast for inflation levels and on President Dilma Rousseff reassurance that Finance Minister Joaquim Levy will stay as they share similar policy goals. Brazil’s interest rate is the highest among the top economies across the globe. An increase would hurt borrowing costs and might send the economy deeper into the recession it has been battling.
Russian Ruble depreciated by 1.75% against USD last week as economic growth remains a concern for the country. In annual terms, the GDP fell for the ninth consecutive month in September. Data showed that Russian GDP in the month of September fell by 3.8% against a decline of 4.6% in the previous month. Retail sales on yearly basis fell by 10.4% in the month of September against the expectation of a decline of 9.3%, followed by 9.1% decline in August.
Asian currencies were down last week on Broad USD strength and ahead of Fed policy meet. Australian Dollar depreciated by 0.66%, New Zealand Dollar depreciated by 0.81%, Japanese Yen depreciated by 1.67%, South Korean Won appreciated by 0.4%, Philippines Peso depreciated by 0.90%, Indonesian Rupiah depreciated by 0.59%, Indian Rupee depreciated by 0.02% against USD but appreciated by 2.49% against Euro, Chinese Yuan appreciated by 0.05%, Malaysian Ringgit depreciated by 1.41% and Thai Baht depreciated by 0.83%.