Global Forex Market
THE greenback ended the week slumping by 1.48% to 91.44 euro mainly dragged by geopolitical worries.
Investor sentiment dropped following North Korea’s nuclear nightmare, cautious Fed speakers and Fed vice-chairman Stanley Fischer’s resignation announcement. Worries emerged surrounding Hurricane Irma, right on the heels of the aftermath of Harvey that caused initial jobless claims to rise well above expectations to 298,000.
Meanwhile, the US trade deficit widened to US$43.7bil in July below expectations of a wider shortfall of US$44.6bil. Losses pared during the week due to President Donald Trump’s debt ceiling deal, improved US economic optimism and rebound in the non-manufacturing sector.
Brent crude oil rebounded by 3.41% to US$54.55/barrel this week, the highest close in 5½ months after North Korea’s nuclear test last weekend as demand picked up following US oil refineries and pipelines slowly resuming activity after Hurricane Harvey’s devastation.
The euro appreciated by 1.48% to its highest since January 2015 despite warnings on the currency’s strength affecting inflation. The European Central Bank (ECB) left monetary policy rate unchanged at 0% and it signalled a stimulus slowdown, set to decide the fate of quantitative easing in October.
The pound rose by 1.18% to its highest in five weeks amid notable dollar weakness, rising ahead of the Brexit debate on EU withdrawal bill despite weak economic data. The Markit/CIPS services PMI declined to 53.2, below expectations of 53.5 and construction PMI also fell to 51.1 in August, its lowest in 1-year.
The yen appreciated against the US dollar by 1.73% to a 10-month high as investors grew concerned of the impact of Hurricane Irma and whether North Korea will conduct another weapons test for its founding day this weekend. Japan’s second quarter GDP grew at an annualised rate of 2.5%, much slower than preliminary estimates of a 4.0% expansion albeit its sixth quarter of expansion.
All Asia-ex Japan currencies appreciated against the US dollar except the Indian rupee and South Korean won. The yuan appreciated by 1.11% as China’s countercyclical adaptation in May influenced the foreign currency exchange reserves to a 10-month high at US$3.092 trillion. Meanwhile, regional tensions surrounding North Korea caused the South Korean won to depreciate the most against the greenback as Trump said that “US military action against North Korea isn’t inevitable but remains an option”.
The ringgit was the best performing currency in Asia as it appreciated by 1.95% with support from strong economic data. Bank Negara left the Overnight Policy Rate (OPR) untouched at 3%, citing predictions of earlier-than-expected firmer growth of the economy, upheld by an improved global outlook and strong domestic demand. The growing demand from China and South-East Asia has increased Malaysian exports by 30.9% y/y. Meanwhile, imports increased by 21.8% y/y causing a contraction in the trade surplus to RM8bil.