Global Forex Market
THIS week’s main headline was the unrelenting rise in US 10-year Treasury bond yield. Multiple factors drove the climb, including concerns that inflation would increase sharply, which might induce the US Federal Reserve (Fed) to take a more aggressive policy stance.
Fundamentally, data shows the economy is doing well with the April Markit Manufacturing PMI (indicates health of the manufacturing sector) rising to 56.5 (March: 55.6) and existing home sales increasing to 5.6 million in March (February: 5.5 million), resulting in the US dollar adding 1.4% to close at 91.561.
Brent crude oil has sustained above US$70 per barrel this week, gaining 0.9% to US$74.74 per barrel.
The main contributing reason is President Donald Trump’s vague stand on the new Iran nuclear deal proposed by French President Emmanuel Macron, which aims to prevent the Opec member from acquiring nuclear weapons. Supply disruptions may ensue if Trump decides to back out and re-impose sanctions, producing a lifting effect on prices.
The euro lost ground following remarks from European Central Bank (ECB) president Draghi acknowledging the softer economic data in the bloc despite reiterating his confidence in the economy, made after the ECB monetary policy decision where key rates were left untouched.
The currency fell 1.5% overall to 1.2103 against the US dollar on the uncertainty surrounding when the ECB will actually terminate its bond-buying programme.
The pound opened on a weaker footing after Bank of England governor Mark Carney’s dovish outlook on the timing of planned interest rate hikes expressed the previous week.
Nonetheless, the currency fared better than its European counterpart but still weakened against the US dollar by 0.5% to 1.3919 largely because of the stronger dollar, with minimal economic data to provide support.
Although investors globally are cautious over the alarming rise in US Treasury yields which also reflects selloffs of Treasury bills, the Japanese yen, well-known to be a safe haven asset, weakened 1.5% to 109.3 against the US dollar.
Next week, Bank of Japan (BoJ) will hold its monetary policy meeting but thus far, BoJ has showed no signs of shifting its accommodative monetary policy stance, providing no comfort for the currency.
Following the sell-off in the global markets early week, majority of Asia ex-Japan currencies weakened against the US dollar excluding a few – the Philippine peso and Indonesian rupiah, which firmed by 0.4% and 0.3%, respectively.
The Philippine peso held its ground on the back of rising speculations that the policymakers may turn hawkish in the coming monetary meeting. Meanwhile, the South Korean won lost 0.6% against the stronger dollar partly due to heavy foreign portfolio outflow amounting US$1.97bil.
The ringgit continued to slide against the US dollar, losing 0.5% over the week to 3.9177.
Similarly impacted by increased risk aversion in global markets generally, the FBM KLCI saw an outflow of foreign funds amounting to RM253.7mil this week, dropping 1.5% lower to 1,852.27 as of its last close. Some downward pressure also came from sell-offs in the local bond market.