Global Foreign Exchange Market

THE dollar continued its upward trend, up 0.1% to 94.9 amid the riskoff sentiment triggered in global markets due to the escalating trade tension between the US and China. As soon as the White House announced the list of US$50bil worth of Chinese goods to be slapped with tariffs, China retaliated with US$34bil worth of US imports tariffs. The concerns grew further after US President Trump threatened to impose an additional US$200bil import tariffs. The tit-fortat retaliation left global markets in a bloodbath, forcing investors to seek safe haven assets.

Brent crude oil fell 3.0% to US$73.10/barrel as the Opec and its allies moved closer to a deal to increase oil production after Iran eased off on its threat to block the agreement. At the same time, Brent was partly affected by the ongoing US-China trade dispute as China slapped import tariffs on US crude oil products.

The euro slipped 0.2% to 1.161 on the back of the stronger dollar, added with a dovish tilt in ECB president Draghi’s speech. In summary, Draghi plans to adopt the patience, persistent and prudence approach to time its first rate hike, leaving the euro vulnerable to the monetary divergence from the Fed. On the data front, May inflation rose 0.5% m/m which fell in line with expectations from 0.3% m/m in April.

As the Brexit noises were seen intensifying over the week as the UK government faced new setbacks in passing its divorce bill due to the divided government. But PM May later won a crucial Brexit vote in keeping her divided government on track on the divorce bill.

However, the market’s focus was on the BoE’s monetary meeting.

To no one’s surprise, the BoE kept interest rate unchanged at 0.5% but the meeting ended with a hawkish tilt tone with a six-three decision, with the BoE’s chief economist supporting an immediate rate hike, fuelling expectations for an August rate hike. Over the week, the pound fell 0.04% to 1.324.

The Japanese yen surged 0.5% to 110.0 as demand for safe papers returns on the growing concerns over the US-China trade war. Over the week, the BoJ’s monetary meeting minutes revealed that the overall members pledged to remain neutral on its monetary policy but one member suggested further easing is required to accelerate inflationary pressure. Meanwhile, key economic release includes May inflation data which rose faster than expected to 0.7% y-o-y from 0.6% y-o-y in April (consensus: 0.3%) while core inflation continued to stayed flat at 0.7% y-o-y in May.

Over the week, the Asian ex-Japan currencies depreciated against the dollar except for the Hong Kong dollar. The Thai baht weakened by 0.7% to 32.9 amid the Bank of Thailand keeping interest rate unchanged at 1.5% while upwardly revising GDP growth forecast to 4.1% from 4.4% in 2018 from 4.1% previously. Meanwhile, the peso fell 0.1% to 53.5 after the central bank raised 25bps on its overnight borrowing rate to 3.50% from 3.25%, marking the second increase in 2018 after having raised rates in May. The decision to raise rates was due to the inflation rate, which is running above its target. The first five-month average inflation stood at 4.1% y-o-y which is higher than the central bank’s target range of between 2% and 4%.

The Malaysian ringgit broke its psychological level, falling 0.5% to 4.016 partly due to persistent foreign selling in the local bourse with a net outflow of RM1.4bil while the KLCI sank below the 1,700 level, down 2.9% to 1,692. On a separate note, May inflation penciled in line with expectations at 1.8% y-o-y from 1.4% y-o-y in April.