USD remained highly volatile last week but managed to end the week higher against all of the major currencies except for the British pound despite a weaker retail sales report and news that North Korea fired another missile over Japan. The rise of U.S. stocks to record high levels and the persistent rise in Treasury yields ahead of Fed meet next week are primary reasons for the USD resilience. Market participants are hoping that the Federal Reserve will share the European Central Bank and the Bank of England’s hawkishness when they meet next week. USD Index (DXY), which tracks the movement of the USD against six major currencies, rose by 0.57% on a week on week basis and is at a level of 91.87.
USD started the week on a high note, recovering from its lowest levels in more than two years as tensions over North Korea eased and Hurricane Irma weakened. Hurricane Irma appears to be less than originally expected though still devastating to infrastructure and initial economic impact with Goldman Sachs shaving 1% off its Q3 GDP view. Further, investors were relieved to learn that North Korea refrained from an expected missile test at the weekend.
U.S. Labour Department’s latest Job Openings and Labour Turnover Survey (JOLTs) report, a measure of labour demand, showed job openings in July improved to about 6.2m, beating expectations of 5.96m.
U.S. labour department reported that Producer price index rose by 0.2% in the month of August from a month earlier against the expectation of 0.3% rise. Higher prices for gasoline accounted for most of the increase. Core producer prices rose by just 0.1% against the expectation of 0.2% rise, followed by a decline of 0.1% in previous month. The report indicated that inflation remains sluggish, underlining uncertainty over the timing of the next rate hike by the Federal Reserve.
Consumer price index data released on Thursday showed that CPI rose by 0.4% in the month of August from a month earlier, while the annual rate of inflation rose to 1.9% from 1.7% in July.
U.S. Department of Labour on Thursday reported that the number of individuals filing for initial jobless benefits in the week ended 9th September fell by 14,000 to 284,000 from previous week’s total of 298,000 against the expectations of a rise by 2,000 to 300,000.
USD turned sharply lower on Friday after the release of disappointing U.S. retail sales data which dampened optimism over the strength of the economy. U.S. Commerce Department reported that retail sales unexpectedly fell by 0.2% in the month of August against the expectation of a rise of 0.1%, followed by a gain of 0.3% in July. A separate report showed that the Empire State manufacturing index slipped to 24.40 this month from 25.20 in August, against the expectations for a decline to 19.00.
The best-performing currency this past week was British pound, which hit a 15-month high. British pound appreciated by 2.98% against USD last week after Bank of England voted 7-2 to leave interest rates unchanged however what got the market really excited was its comment that “a majority of monetary policy members see scope for stimulus reduction in the coming months indicating that the BoE is preparing to join the ECB and the Fed in removing stimulus.
Euro depreciated by 0.76% against the USD last week. The loss in euro is largely driven by the market’s appetite for USD and British pounds. ECB is expected to make an announcement on reducing bond purchases next month, starting off gradual phase of policy normalization.
Asian currencies were broadly lower last week against the USD. Australian Dollar depreciated by 0.72%, New Zealand Dollar appreciated by 0.47%, Japanese Yen depreciated by 2.70% against the USD and depreciated by 1.99% against the Euro. South Korean Won depreciated by 0.39%, Philippines Peso depreciated by 0.84%, Indonesian Rupiah depreciated by 0.42%, Indian Rupee depreciated by 0.46% against the USD and appreciated by 0.37% against the Euro, Chinese Yuan depreciated by 0.89%, Malaysian Ringgit appreciated by 0.14% and Thai Baht appreciated by 0.07%.