Currency Market Review

In July, movement of major global currencies remained volatile against the USD. The price of crude oil determined the movement of the USD during major part of the month. In addition to crude oil prices, US job data, credit market condition, inflation data, long term view of the US economy and US stand over Iran's nuclear test programme also determined the movement of USD visa– vis other currencies . The fall in crude oil prices in July, from its peak in June, helped in strengthening the USD against the other major global currencies.

The USD fell in the first half of the month largely due to news of missile test done by Iran, decline of US oil inventories in the first week of July and the Federal Reserve chairman, Ben Bernanke comment that risks have increased in relation to both growth and inflation.

Payroll provider, ADP reported a 9000 rise in private sector jobs in July. The Conference Board reported stronger consumer confidence numbers, while an independent economic research organization stated that its confidence index rose to 51.9 in July from 51 in June. These factors helped the USD to strengthen against the major global currencies. The fall in the four-week moving average of jobless claims in the week ending 19 July - despite initial claims climbing to 406,000 - also helped the positive USD movement in the second half of the month. The announcement made by Federal Reserve regarding an extension of the tenure (in addition to 28-day loans, Federal Reserve will also be selling 84-day loans) of their Primary Dealer Credit and Term Securities Lending Facilities supported the movement of the USD.

Chart 1: Movement in currencies of remittance sourcing countries vs USD

Chart 2: Movement in currencies of remittance receiving countries vs USD

The USD remained weaker against Euro, Yen and GBP, during the first half of July, but strengthened towards the end of the month. The Ifo Institute, in Germany, reported that business confidence in the country was at 97.5 on its business climate index in July, down from 101.2 in June, marking the biggest drop since September 2001. In the UK, the Office for National Statistics in London, reported a more-thanexpected decline of 3.9% in retail sales in the country. The Commerce Department of the US reported that US GDP registered a growth of 1.9% in the second quarter, compared to revised annual growth of 0.9% in the first quarter. These factors gave positive momentum to the USD towards the end of July. The USD traded strongly against Swiss Franc for the major part of the month.