Global Forex Market
HOW low can the dollar go?
To a 13-month low as seen this week driven by the euro rally and the opposition by two Republican senators of the party’s healthcare bill which has impeded the passing of the legislation.
The dollar index declined by 0.89% to 94.31 on Thursday. On the data front, building permits and housing starts in June climbed morethan expected to 1.25 million and 1.22 million, respectively.
Meanwhile, initial jobless claims fell to 233,000 for the week ending July 15 compared to 248,000, previously. Brent crude oil sustained its rebounded this week with a rise of 0.80% to US$49.30/barrel after the EIA reported that US domestic crude supplies dropped by 4.7 million barrels for the week ending July 14. Oil prices were also supported by a report that Saudi Arabia is considering cutting its crude exports by 1 million barrels a day in order to offset a rise in output from Libya and Nigeria. At the latest monetary policy meeting, the European Central Bank (ECB) left its interest rate unchanged at 0% and maintained its monthly 60 billion euro quantitative easing programme.
ECB’s Mario Draghi stated during the press conference that policymakers will begin discussing possible changes to its QE in September. This had led the euro to surge by 1.4% to a oneyear high of 1.1631 on Thursday. During the week, the euro also managed to leverage on the dollar weakness as well as June’s inflation which improved to a flat reading compared to 0.1% m/m in May. The pound was the worst performing G10 currency this week, as it plunged against the dollar by 0.95% dragged the rally in the euro and weak inflation data which had lowered expectations for a rate hike this year.
Inflation in June moderated to 2.6%y/y from 2.9%y/y in May driven by lower prices of petrol and diesel. The pound was also weighed down by political concerns as Brexit talks commenced on Monday in Brussels. The yen strengthened by 0.6% amid the weaker dollar despite more bearish outlook by the central bank. At its latest monetary policy meeting, Bank of Japan (BoJ) left rates unchanged at 0.1% and its government bond buying programme intact at an annual pace of 80 trillion yen.
However, BoJ had moved its goalpost for the sixth time, shifting the 2.0% inflation deadline to around the fiscal year starting in April 2019. All Asia ex-Japan currencies appreciated against the dollar except for the Hong Kong dollar, Taiwanese dollar and Philippine peso. In China, GDP expanded at the same pace as in 1Q2017 at 6.9% y/y, suggesting the economy is poised to perform better than the official projection of 6.5% in 2017.
Growth was supported by better export performance and higher production, namely that of steel. In Singapore, trade surplus widened to S$6.0bn from S$4.8bn in May, its largest since March 2017 aided by larger nonoil domestic exports and moderating nonoil imports. The ringgit appreciated by 0.03% against the softer greenback this week supported by higher crude oil prices. Lower fuel prices, moderate food price and flat nonfood prices saw the headline inflation easing in the month of June for the third straight month and staying below the 4% for the second month in a row.
June’s headline inflation was 3.6% with core inflation at 2.5%. Meanwhile, unemployment rate was steady at 3.4% in May for the third consecutive month with net employment up by 24.8 thousand and net unemployment down by 4.4 thousand.