U.S. Dollar Index Plunges, Led by Surge in Euro, Dovish Yellen
A combination of events put pressure on the U.S. Dollar last week, culminating with speeches by Fed Chair Janet Yellen and European Central Bank President Mario Draghi on Friday.
September U.S. Dollar Index futures settled the week at 92.677, down -0.682 or -0.73%.
The week started with the dollar under pressure amid geopolitical tension in North Korea, as investors braced for the annual central bankers’ symposium at Jackson Hole, Wyoming. South Korean and U.S. forces began computer-simulated military exercises on Monday in the wake of North Korea’s weapons programs, angering the Asian communist regime. North Korea denounced the exercises as preparations for a nuclear war.
The dollar bounced higher about mid-week after the Euro was pressured by a weaker-than-expected reading on German investor confidence. Position-squaring ahead of the Jackson Hole symposium also supported the dollar.
The Greenback was also pressured during the week after U.S. President Donald Trump suggested a shutdown of the government was possible and threatened to terminate the North American Free Trade Agreement.
The U.S. Dollar was supported late in the week on increased speculation Republicans and Trump were getting closer to announcing their tax reform plan. President Trump’s chief economic advisor Gary Cohn said the President will start publicly campaigning for highly-anticipated tax reform next week. Cohn told the Financial Times that Trump will begin calling for long-awaited reform next Wednesday when he visits Missouri.
Finally, the week ended with the dollar index plunging in reaction to a surge in the Euro. The EUR/USD rallied to a two-year high after European Central Bank President Mario Draghi mentioned nothing about concerns over a high-priced Euro. Dovish comments from Fed Chair Janet Yellen also contributed to the dollar’s weakness.
Japanese Yen
The Dollar/Yen posted a two-sided trade on low volume before settling slightly higher.
The USD/JPY finished the week at 109.323, up 0.131 or +0.12%.
In Japan, Flash Manufacturing PMI came in higher than expected at 52.8. Tokyo Core CPI grew 0.4%, higher than expected. National Core CPI was 0.5%, equaling the forecast.
The price action in the USD/JPY basically tracked the movement in U.S. Treasury yields.
New Zealand Dollar
The New Zealand Dollar fell sharply against the U.S. Dollar last week after the New Zealand government cut its economic growth forecasts in a pre-election finance update.
The NZD/USD settled at .7239, down 0.0071 or -0.97%.
“The softer growth New Zealand has experienced in the six months to March flows through to a lower starting point in the 2017/2018 year,” says finance minister Steven Joyce in the Treasury’s Pre-election Economic and Fiscal Update 2017.
Joyce’s forecast that the NZ economy grew by 2.6% during the year to June, down from an earlier 3.2% forecast, while growth for the year to June 2018 is expected to be 20 basis points lower than earlier projections, at 3.5%.
Over the four-year forecast period, New Zealand’s economic growth is now seen averaging 3%, rather than the 3.1% previous predicted.
Joyce also said that the NZ budget surplus grew by $2.1 billion for the year just ended, but then announced reduced Treasury forecasts for the surplus over the four years to June 2021.
“However Treasury expects the lower growth forecast to result in surpluses that are $1.8 billion lower over the next four years,” Joyce added.
The news left traders weighing the possible implications the government’s projections may have for interest rate policy at the Reserve Bank of New Zealand. Translation: Investors are worried the economy is not strong enough to warrant a near-term interest rate hike by the RBNZ.
AUD/USD
There were no major reports from Australia last week. Most of the price action was related to position-squaring ahead of the Jackson Hole symposium. The Aussie picked up strength at times when the spread between Australian Government Bonds and U.S. Government Bonds widened. Also influencing the price action was risk sentiment, or demand for higher-yielding assets.
The AUD/USD finished the week at .7931, up 0.0004 or +0.06%.
This article was originally posted on FX Empire