19 Jul 2015

USD is Expected to Strengthen on Janet Yellen Guidance

Global currencies declined last week on broad USD strength with the USD Index (DXY), which tracks the movement of the USD against six currencies, posted a gain of 1.91%.

author dp
Team INRBonds
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Global currencies declined last week on broad USD strength with the USD Index (DXY), which tracks the movement of the USD against six currencies, posted a gain of 1.91%. The gain came after Fed Chair Janet Yellen in her testimony before the House Financial Services Committee stated that the  Fed is on track to raise rates at some point of time this year. She also added that Greek debt crisis as well as China’s recent economic woes posed some risks to the U.S economy. USD got support from upbeat U.S economic data, which was released last week. USD was also helped by resolution of Greece debt crises as ECB increased its emergency lending by 900 million Euro to Greek banks after Greece’s parliament on Wednesday approved stringent reform measures, which was demanded by the country’s creditors.

USD started the week on a high note but turned lower on Tuesday after the release of U.S. retail sales data. U.S. Commerce Department reported that retail sales fell by 0.3% in the month of June against the expectation of 0.2% rise, retail sales rose by 1% in the month of May.

On Wednesday data showed that Empire State Manufacturing Index rose to 3.86 levels in July from -1.98 in June against the expectation of a reading of 3.00. U.S. producer prices rose by 0.4% in the month of June beating the expectation of 0.2% rise.

U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 11th July fell by 15,000 to 281,000 from the previous week’s total of 296,000 and against expectations of decline of 10,000 to 285,000.

On Friday, data released showed that U.S. consumer price index rose 0.3% in the month of June, which was in line with expectations after 0.4% rise in the month of May. On yearly basis consumer prices rose by 0.1% in the month of June, which again was in line with expectations. Core consumer prices rose by 0.2% in the month of June in line with expectations after rising by 0.1% in May.

U.S. housing starts rose 9.8% to 1.174 million units in the month of June from a total of 1.069 million units in May against the expectation of 6.2% rise. U.S. building permits rose 7.4% to 1.343 million units in the month of June from 1.250 million units in May beating expectations with a wide margin as the general expectation was of a decline of 11.8%.

Euro depreciated by 2.97% against the USD last week after the ECB in its policy meet decided to keep Euro Area interest rates on hold at record lows. Euro found some support after Eurozone ministers agreed on Thursday to give Greece a 7 billion Euro bridge loan. ECB has also increased its emergency lending to Greek banks by 900 million Euro under the assumption that Greece will remain in the Eurozone.

Brazilian Real depreciated by 0.88% against the USD last week due to mounting political tensions that will make it harder for President Dilma Rousseff to trim budget deficits and maintain the nation’s credit rating. Real came under pressure after the speaker of Brazil’s lower house of Congress, Eduardo Cunha announced on Friday that he was breaking with Rousseff’s government.

Russian Ruble depreciated by 0.93% against the USD as Brent crude oil prices declined by 3.51% on weekly basis from 59.18 USD/bbl to 57.1 USD/bbl after Iran signed a deal with a group of six countries led by the United States on its nuclear program. Iran will give up the bulk of its nuclear program and has also agreed for invasive inspections in its nuclear program to make sure that it would not cheat in this respect.

Various sanctions which was imposed as a result of Iran not signing the deal in the past would be removed and the country would be free to trade various products and services with other countries. Russia’s main export is Crude Oil & Natural Gas, which helps the country generate half of its budget revenues. Bank of Russia is buying as much as USD 200 million daily to boost the nation’s reserves to USD 500 billion, it has purchased USD 7.4 billion since 13th May.

Asian currencies were down against the USD last week due to broad USD strength. Australian Dollar declined by 1.01%, Japanese Yen declined by 1.06% South Korean Won declined by 1.57%, Philippine Peso declined by 0.32%, Indonesian Rupiah declined by 0.29% and Thai Baht declined by 0.85%. Indian Rupee declined by 0.12% against USD and appreciated by 2.85% against Euro.