USD traded higher against major currencies last week and rose to its strongest level against the Japanese Yen in 10 months. USD’s rally was largely driven by the renewed upsurge in U.S. treasury yields, which was sparked by the European Central Bank’s policy decision of lowering size of QE from Euro 80 billion a month to Euro 60 billion a month, starting April 2017. ECB also lengthened QE period from March 2017 to December 2017. USD momentum continued into Friday by the stronger University of Michigan Consumer Sentiment report. Among global Central Banks, Fed is the only central bank raising interest rates though ECB is now slowly thinking about tapering of ultra loose accommodative policy.
USD started the week on a high note after Friday’s solid U.S. jobs report for November, which confirmed the expectations for an interest rate hike by the Fed in its upcoming policy meeting scheduled on December 13-14. USD further extended its gains after ECB policy decision and positive U.S. jobless claims report. USD Index (DXY), which tracks the movement of the USD against six major currencies, gained by 0.81% on a week on week basis and is at a level of 101.59.
USD will continue to strengthen in the coming weeks if Fed hikes rate in its upcoming policy meet and provide aggressive guidance for future rate hikes in 2017. In case, the Fed refuses to hint at a guidance for future tightening and simply says it is data dependent, the USD will fall given its aggressive rise. USD Index (DXY) gained by over 4% since November.
U.S. Department of Labour on Thursday reported that number of individuals filing for initial jobless benefits in the week ended 2nd December fell by 10,000 to 258,000 from previous week’s total of 268,000, which was largely in-line with expectations.
University of Michigan on Friday reported that its consumer sentiment index rose to a 23-month high of 98.0 in the month of December against the expectation of 94.5, followed by 93.8 in November.
Euro closed weak post ECB meet after climbing higher against the USD from 20-month lows on Monday, as markets covered shorts post Italian referendum. Italian voters rejected a referendum on constitutional changes backed by the government, prompting Prime Minister Matteo Renzi to step down. Further the concerns over financial health of Italy’s ailing banking sector was heightened by the fear that Renzi’s bank bailout program could be scrapped. Euro depreciated by 0.97% against the USD last week.
Asian currencies closed mixed against the USD. Australian Dollar depreciated by 0.11%, New Zealand Dollar depreciated by 0.07%, Japanese Yen depreciated by 1.57% against the USD and by 0.56% against the Euro. South Korean Won appreciated by 0.57%, Philippines Peso depreciated by 0.31%, Indonesian Rupiah appreciated by 1.45%, Indian Rupee appreciated by 1.20% against the USD and by 1.69% against the Euro, Chinese Yuan depreciated by 0.41%, Malaysian Ringgit appreciated by 0.65% and Thai Baht depreciated by 0.04%.