Negative outlook for global growth and the subdued U.S. inflation outlook has off late brought USD under pressure as it pushes back the expectations for an initial rate hike by the Federal Reserve. However, strong economic data is feeding into the Fed’s mind and markets could well see the start of rate hikes in September leading to a strengthening USD.
The USD started the week on a lower note on rising worries over global economic growth as Chinese data released on previous to last Friday showed that manufacturing activity in China contracted at the fastest rate in six-and-a-half years in the month of August, spurring fears over a slowdown in the world’s second-largest economy.
In the later part of the week, USD gained on the back of China rate cut on Tuesday and the release of upbeat U.S. economic data during the week, which has revived the expectation of U.S. rate hike. PBoC on Tuesday cut its benchmark one year lending rate by 25 bps to 4.6% and the one year rate for deposits by a similar margin to 1.75%. PBoC also lowered the reserve requirement for banks by 50 bps, which will ease liquidity and enable banks to lend more to the economy.
USD Index (DXY), which tracks the movement of the USD against six major currencies, managed to post a gain of 1.16% on weekly basis to close at levels of 96.11.
The Conference Board on Tuesday reported that index of consumer confidence jumped to a seven-month high of 101.5 in the month of August from 91 in the month of July, against the expectation of 93.4. U.S. new home sales data released on Tuesday showed that it rose by 5.45% to 507,000 units in the month of August against the expectations of a gain of 5.8% to 510,000 units.
USD on Wednesday gained as U.S. rate hike expectation got a boost on the core capital goods orders data, which is a proxy for business spending. Data showed that core capital goods orders rose by 2.2% in the month of July. U.S. Commerce Department also reported that total durable goods orders rose by 2.0% in the month of July against the expectations of a decline of 0.4%, it rose by 4.1% in June.
USD on Thursday extended its gain as U.S. Commerce Department reported that U.S. GDP grew at an annual rate of 3.7% in second quarter of FY15 beating the expectations of a growth of 3.2%.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 22nd August declined by 6,000 to 271,000 from the previous week’s total of 277,000 and against expectations of a fall of 3,000 to 274,000.
U.S. Bureau of Economic Analysis on Friday reported that U.S. trade deficit narrowed to USD 59.12 billion in the month of July from USD 62.26 billion in June.
U.S. personal spending data shows that it rose by 0.3% in the month of July, which is below the expectation of 0.4%. U.S. personal income rose by 0.4% in the month of July which was in line with the expectation.
Euro depreciated by 1.77% against the USD last week. In the early part of the week Euro gained due to rising risk aversion but later declined after ECB Executive Board member Peter Praet on Wednesday said that lower commodity prices and signs of economic weakness mean that there is an increased risk that the Euro Area will miss its short-term inflation target. He also indicated that the ECB is prepared to scale up its asset purchase program, known as quantitative easing, if necessary.
Russian Ruble led the global currency gain on weekly basis by appreciating by 6.09% against the USD. The currency gained as Brent crude oil prices rose by 10.82% on weekly basis from 45.46 USD/bbl to 50.38 USD/bbl.
Brazilian Real depreciated by 2.28% against the USD last week as data suggested that Brazilian economy is in deep recession in the second quarter of FY15. GDP data reported on Friday showed that the economy has declined by 1.9% in the second quarter. Brazil economy is already feeling the brunt of high unemployment rate, falling commodity prices, political crisis and a corruption scandal. Recent crises in China market has put Brazil economy into deep trouble as China is the biggest trading partner for the country.
Asian currencies were broadly down on worries of weak global economic growth outlook. Australian Dollar depreciated by 1.95%, New Zealand Dollar depreciated by 3.32%, Philippines Peso depreciated by 0.06%, Indonesia Rupiah depreciated by 0.29%, Indian Rupee depreciated by 0.5% against USD but appreciated by 1.92% against Euro. Chinese Yuan depreciated by 0.01% after PBoC on Tuesday acted to stem the recent turmoil in the Chinese market. Malaysian Ringgit depreciated by 0.73% and Thai Baht depreciated by 0.41%. Japanese Yen appreciated by 0.27% and South Korean Won appreciated by 1.78% on rising risk aversion.