Global Forex Market

THE US dollar rose 0.94% to close at 92.414 as markets were pricing in a June rate hike and looking for clues if there would be three or four rate hikes in 2018 ahead of the FOMC meeting.

The meeting, which ended with an expected no rate hike by the Fed, included the word “symmetric” in its official statement, suggesting the Fed will tolerate inflation rising moderately above 2% over the coming months.

Over the week, economic data release in the US was largely positive with April Markit PMI expanding further to 56.5 from 55.6 and March trade deficit narrowing down more than expected to US$49bil from a deficit of US$57.7bil in February.

Brent crude oil erased last week’s gains, falling 1.3% to close at US$73.62/ barrel. The subdued prices were largely due the EIA report which showed an unexpected increase of 6.2 million barrels US oil inventories.

Simultaneously, uncertainties surrounding the US on the Iran nuclear deal weighed slightly on the commodity.

The euro fell 1.2% over the week largely due to the stronger dollar. The currency also suffered on the back of dim economic release with the firstestimate for 1Q18 GDP slowing down to 2.5% y-o-y from 2.8% y-o-y in 4Q17, raising concerns on the euro’s growth prospect and inflation outlook in the bloc. At the same time, April inflation estimation rose slightly below consensus at 1.2% y-o-y (+1.3% y-o-y in March).

The pound performed the worst among G3 currencies, slipping 1.5% to 1.358 also due to the stronger dollar as well as the fact that markets focused on the local election amid PM Theresa May’s struggle to table a clear Brexit policy with a defiant Cabinet. Data was mixed as April’s Manufacturing PMI eased to 53.9 from 54.9 in March while April Services PMI expanded to 52.8 compared to 51.7 in March.

The yen slipped by 0.1% to 109.2. With waning uncertainties in the global markets and the stronger dollar, the yen lost its ground. However, the yen recouped some of its losses after markets digested the dovish tilt tone from the Fed.

The economy saw a mixed bag of data over the week with the April Consumer Confidence Index contracting to 43.6 from 44.3 in March while the April Manufacturing PMI rebounded to 53.8 versus 53.1 in March.

The majority of Asia ex-Japan currencies weakened against the greenback except for the peso, rupee and Korean won. The peso was the best performer for the week, gaining 0.4% over the week as the central bank turned hawkish in raising its policy rate after the higher inflation print as April core inflation pencilled at 5.0% y-o-y from 4.7% y-o-y in March. Meanwhile, the yuan fell 0.3% amid the ongoing trade negotiation between the US and China.

The ringgit depreciated 0.3% to 3.9330 against the stronger dollar. With markets largely subdued following the Workers Day holiday, the FBM KLCI shed 0.8% to 1,851.8 and recorded a net foreign outflow of RM156.9mil.

Apart from that, some downward pressure was seen in the local bond market. Over the week, the April Nikkei PMI eased further to 48.6 from 49.5 in March while March export rebound to 2.2% y-o-y from a decline of 2.0% y-o-y in February.