Global Forex Market

AT the beginning of the week, the US dollar lost steam as the US$200bil worth of tariffs on Chinese goods took effect, added with the cancellation of trade talks scheduled this week between the US and China as Beijing plans to release a white paper on the trade dispute.

However, the greenback managed to claw back losses after the Fed’s decision to hike interest rate by 25 basis points (bps) to 2.25% while raising the 2018 GDP projection from 2.8% year-on-year (y-o-y) to 3.1% y-oy. The improved sentiment was seen being carried forward into the end of the week. The US dollar closed 0.75% higher at 94.9.

In the commodity space, Brent crude price rose 0.47% to US$81.72 per barrel despite US President Donald Trump calling for Opec and its allies to increase production.

Following the Opec’s decision to not increase production, supply concerns re-emerged as investors are concerned over the decline in the Iranian supply, which is projected to fall one million barrels per day after the US sanction takes effect.

The euro fell 0.91% to 1.164 against the stronger dollar. Mid-week, the euro crossed above 1.18 levels slightly after European Central Bank president Mario Draghi, while voicing his confidence in the bloc’s inflation and wage growth, also cautioned the bloc to brace for big impact should the threats between the US and China materialise.

But the gain was wiped out when the Italian government unveiled its 2019 budget showing a deficit of 2.4% of its GDP, which surprised the market as Finance Minister Giovanni Tria had been calling for a 1.6% target to meet the EU budget rule.

Over the week, pound depreciated by 0.31% to 1.308 partly due to the stronger US dollar. At the beginning of the week, there was improved optimism over Brexit negotiations as Brexit secretary Dominic Raab expressed confidence in clinching a deal with the EU.

However, that optimism faded when the opposition Labour Party threatened to vote down any Brexit deal and called for another referendum.

The Japanese yen dropped 0.51% to close at 113.4 against the US dollar following the release of a mixed bag of economic data: July Leading Index fell to 103.9 points from June’s 104.6 points (cons: 103.5) while the coincident index fell to 116.1 points from 116.9 (cons: 116.3); August unemployment rate came in lower than market expectation of 2.5%, at 2.4% (July: 2.5%); August Industrial Production dipped to 0.6% y-o-y from July’s 2.2% y-o-y while August retail sales exceeded the expectation of 2.1% y-o-y, coming in at 2.7% y-o-y (cons: 1.5% y-o-y).

Meanwhile, the release of the Bank of Japan’s meeting minutes also revealed that several board members expressed concerns over the potential dangers of an ultra-easy policy.

Central banks in Asean countries continued to tighten the policy in an effort to curb capital outflow and inflation pressure, with Indonesian and Philipine central banks meeting excpectation with 25 bps and 50 bps hikes to 5.75% and 4.50%, respectively.

Emerging market currencies closed mixed against the greenback. The South Korean won appreciated the most, gaining 0.69% to 1112.7 against the US dollar; second was the Taiwanese dollar, rising 0.36% to 30.57.

On the other hand, the Chinese yuan and Indonesian rupiah depreciated 0.48% and 0.38% to 6.89 and 14923.00, respectively.

Over the week, the ringgit slipped 0.26% to 4.140 against the stronger US dollar. Though the local bourse closed 0.01% lower at 1,798.64, it recorded a net foreign fund inflow of RM223.0mil.

Data released during the week includes the July Coincident Index, which came in at 1.6% month-onmonth (m-o-m) from the previous month’s 1.2% m-o-m, while the leading index was recorded at 0.2% m-o-m from June’s 0.5% m-o-m.