The US Federal Reserve ended its record asset purchase program on 29th October 2014. As a result of this, the US dollar index has strengthened to three year highs to 87.6 in November 2014 from 77.3 in November 2011. The dollar index strengthened on improving consumer sentiment, improving jobs data and recovery in housing demand. US markets have closed at record highs. Euro, GBP and JPY weakened against the dollar since the announcement of end of tapering. The economic data weakened in Germany, France and Italy as compared to the earlier months. Euro zone’s unemployment rate remained unchanged at 11.5% in October as compared to last month. In September 2014, ECB projects Eurozone Real GDP growth to increase by 0.9% in 2014, 1.6% in 2015 and 1.9% in 2016.

ECB had cut the deposit rates to minus 0.2 percent in September 2014 to stimulate the economic growth in euro zone. Euro fell by 9.7% this year to $1.2455. The weakness was due to lower than anticipated growth, contraction in industrial production, slowdown in retail sales, 25banks failing the ECB stress tests and strengthening US dollar. United Kingdom saw an uptick in housing prices, increase in industrial production and an uptick in consumer price inflation. The British Pound fell by 4.2% to $1.5869.

Bank of Japan (BoJ) implemented additional easing measures at the policy meeting on 31st October; it increased the monetary base commitment to Yen80trillion from Yen60trillion. The BoJ has said that until 2% price stability target is achieved it will increase its holding to Japanese Govt bonds, ETF’s and Real Estate Investments. Japan’s nationwide CPI rose 1% in September, the inflationary pressures have eased on increase in consumption tax hike coupled with downward pressure on prices due to fall in oil prices, this raises further possibility of inflation slowdown. BoJ revised its GDP growth projection for FY14 to 0.5% from 1.0% as of July 2014 and 1.4% as of April 2013. The Japanese Yen has fallen by 8.9% to 114.60 against the US Dollar. The Japanese Yen may further weaken if inflation target of 2% is not met, this may result in further easing by BoJ.

The emerging markets like Russia saw sharp fall in its currency against US dollar on account of end of tapering and uncertainty in revival of economic growth. Brazilian Real fell by more than 8.3% to 2.5587 against the US dollar this year. Russian Ruble has fallen by 42.2% to 46.7232 against the US dollar this year. The Brazilian Real has concerns of high inflation and slowing growth. The Russian Ruble fell on account of political stand-off in Ukraine and a non-performing economy.

In China the policymakers have pledged to move gradually towards full convertibility of the yuan, allowing it to be freely bought and sold. The PBoC had earlier removed the peg of the yuan against the US dollar in June 2010. Chinese Yuan has fallen by 1.1% to 6.1224 against the US dollar this year. The bilateral trade has expanded between Gulf Co-operation Council and China this will increase usage of the yuan. According to the Society for Worldwide Interbank Financial Telecommunication (SWIFT), in December 2013 the yuan overtook the euro as the second most used currency in trade finance. Indian rupee has shown resilience against the US dollar as compared to the emerging market currencies. The Indian rupee has strengthened by 0.26% to 61.6362 against the US dollar this year. The rupee strengthened on account of reforms being executed by the new stable government, IMF upgrading GDP growth for India and expectations of further reforms resulting in foreign money flowing into the country. The WTI and Brent have fallen 20.1% and 24.7% respectively till date on account of end of tapering program by US Fed, easing concerns on Russia –Ukraine, Libya supply and increase in overall supply of oil coupled with global growth concerns.

The Japan’s USD1.2trillion public pension fund said it plans to make more aggressive bets by slashing the money it puts in domestic bonds and ramping up its investment in stocks. It will raise allocations for Japanese and foreign stocks to 25% each, while reducing its domestic debt allocation to 35% of assets and increasing overseas bonds to 15%. The dramatic portfolio shift of the Government pension fund is aimed at boosting the retirement incomes of the fund’s 67million participants. The financial markets have reacted positively to the BoJ easing plan. The USDJPY will continue to strengthen as inflationary expectations may not match the pace of BoJ requirement, this is positive for Japan as it is a huge exporter of automobiles, electronics and other accessories. With the Fed ending QE and a countdown to rate hike anticipated in Q2FY15 might keep the currency markets volatile going ahead. The economies which are able to consolidate the fiscal and monetary policies will be able to revive economic growth.