Euro depreciated by 1.49% on weekly basis against the USD and is trading at four year lows at levels of Eur 1.20. The decline last week came after European Central Bank (ECB) president Mario Draghi, in an interview, renewed expectations that the ECB would soon start buying government bonds to help to stimulate the Eurozone economy. Euro also came under pressure after data showed weak manufacturing figures for December in the Eurozone. Markit Manufacturing Purchasing Managers’ Index (PMI) came in at 50.6 this month from 50.1 in November, but was below expectations of 50.8. A reading above 50 for the index indicates an expansion in activity while one below that level signals a contraction.
USD started 2015 on a high note as it touched fresh nine-year highs against major currencies and is expected to continue its upward trajectory due to rising central bank divergent policies. Fed is expected to raise interest rates in 2015 on the back of economy recovery and improving labour market whereas ECB and BOJ are in stimulus mode to boost ailing economy and fight back deflation.
The USD Index (DXY), which tracks the movement of the USD against six currencies, rose by 1.17% in the last week and on yearly basis the index is up by 12.96%. USD gained despite weak US manufacturing activity for the month of December. The Institute for Supply Management (ISM) said its index of national factory activity fell to 55.5 from 58.7 the month before, which is below expectation of 57.6.
US Jobless claims for the week ending 27th December rose by 17,000 to 298,000 from the previous week’s revised total of 281,000. The rise was above expectation. In 2014, fewest Americans have filed for unemployment benefits in 14 years, indicating improving US labour market conditions. On a weekly average basis, 308,000 workers have filed for benefits during the year, the least since 299,600 seen in 2000.
Real depreciated by 0.94% last week against the USD after the Brazilian central bank unveiled the details of its intervention program. The central bank in its statement on 30th December stated that it will offer as much as USD 100 million a day in currency swaps until 31st March, compared with USD 200 million a day last year. The intervention program began in 2013 to support the Real and limit import price increases.
Russian Ruble posted weekly loss of 9.81% against the USD extending its yearly decline to 77.55%. Russian inflation grew fastest in more than five years, Consumer prices rose 11.4% in December from a year earlier, compared with 9.1% in November. The data exceeded median estimate of 11.2%. Ruble fall has taken up prices of imports leading to rising inflation.
In November, Russia’s economy contracted for the first time in more than five years. According to the Russian economy ministry, the country’s gross domestic product (GDP) fell by 0.5% during the month. This was the first drop since September 2009. The Russian government expects a 0.8% decline in GDP next year compared with 0.6% GDP growth in 2014 as a whole.
Russia’s economy is heavily dependent on energy exports, which have been hit by the oil price slump and US and European sanctions over Ukraine conflict. Crude oil has declined to five and a half year low levels and Brent Crude is currently trading below 57 USD/bbl.
Asian currencies were majorly down on weekly basis against the USD due to rising global risk aversion as yield on 10 year US treasury fell by 13 bps last week. Australian Dollar declined by 0.39%, Japanese Yen declined by 0.16%, South Korean Won declined by 0.43%, Philippines Peso declined by 0.23%, Indonesia Rupiah declined by 0.36% and Thai Baht declined by 0.16% whereas Indian Rupee rose by 0.43% and Chinese Yuan rose by 0.09%
Indian Rupee (INR) ended its three week losing streak and posted gain of 0.43% against the USD last week. INR strength came due to plunging oil prices that has reduced India’s inflation concern as the country imports 80% of its oil requirements, which has spurred optimism on RBI rate cuts. On yearly basis INR has depreciated by 2% against the USD.