Global Forex Market
The US dollar index remained soft this week, falling by 0.23% to close at 97.22 on Thursday due to increased demand for euro and pound amid political uncertainty ahead of the upcoming UK elections and European Central Bank (ECB) policy meeting next week.
On the macro front, the dollar failed to be propped up by stronger consumer spending, faster inflation, firmer personal income and higher employment.
Brent crude oil continued to fall by 3.3% to US$50.4/barrel driven by concerns that prolonged production cut by Opec will be able to reduce the global supply glut as the oil rig count according to Baker Hughes rose to 722 in the week ended May 19. Oil prices experienced some upward pressure after API reported the biggest draw this year of 8.67 million barrels for the week of May 26.
The euro rose against the softer dollar by 0.3% following news that ECB may upgrade its assessment on the economic outlook for the eurozone at its upcoming policy meeting. On the data front, inflation moderated to 1.4% y/y in May from 1.9% y/y in April, its slowest rate since December 2016. Unemployment fell to 9.3% from 9.4%, its lowest rate since March 2009.
The pound was the best performing G10 currency this week, appreciating by 0.7%. Various polls showing that UK’s Conservative party had managed to increase its lead ahead of the snap election on June 8 has been keeping the pound firmer against the softer dollar. Consumer confidence in May improved to -5 from -7 in April led by household’s increased optimism in their personal financial situation, the economy and future plans for shopping and saving.
The yen was flat against the US dollar as uncertainties surrounding the upcoming election in the UK has increased the safe-haven appeal of the yen. On the data front, unemployment rate in April was steady at 2.8% while retail sales jumped to 3.2% y/y from 2.1% y/y with increases seen in most categories.
All Asia-ex Japan currencies depreciated against the US dollar except the yuan, Philippine peso and Hong Kong dollar. In line with consensus expectations, the Bank of Thailand kept its policy rate steady at 1.50% as it continues to support economic recovery amidst global uncertainties. In Singapore, first quarter GDP moderated to 2.7%y/y from 2.9%y/y previously, where the contraction in construction managed to offset the gains in the services and manufacturing sectors.
The ringgit was the worst performing Asian currency against the greenback over the week as it dropped by 0.5% due to weaker oil prices and soft market sentiment. The Producer Price Index in April grew at a slower pace by 7.5%y/y, the second straight month of increasing at a decreasing pace and also reporting single-digit gains due to the moderate increase in prices of intermediate materials and also the prices of finished goods. Markit Manufacturing PMI in May re-entered the contraction region, registering a reading of 48.7 from 50.7 in April. Meanwhile, Malaysian government securities’ 5-year yield was up 1bps to 3.566 while 10-year yield rose by 0.9bps to 3.882 amid the weaker ringgit.