Global Forex Market
THE dollar appreciated by 0.36% to 97.631 following a confluence of factors such as the dovish ECB meeting; higher demand for safe-haven assets as optimism in the Us-china trade talks was offset by another round of Brexit saga; and better-than-expected flash PMI data with the October Markit manufacturing PMI preliminary estimate rising to 51.5 points from 51.1 points in September and beating market expectation of 50.7.
The euro depreciated by 0.56% to 1.110 after the ECB monetary meeting ended with an overall dovish tone. This was Draghi’s last meeting. As expected, the ECB kept interest rate at 0% and deposit rate at -0.50%. The meeting was short on forward guidance, but the ECB still see the need for highly accommodative policy amid weak growth, muted underlying inflation and low inflation expectations.
The pound plunged 1.02% to 1.285 as the Brexit saga continues. Although the market remained optimistic that the UK and EU could soon reach a deal early in the week, the optimism was short-lived. The mild selling pressure was prompted after the UK Parliament rejected Prime Minister Boris Johnson’s plan to fasttrack his Brexit accord. But the selling was contained as the EC president has recommended to allow for an extension and suggested that the next deadline could potentially be in Jan 31, 2020. However, towards the end of the week, Johnson called for the UK to hold a general election on Dec 12, after his attempts to push his Brexit bill through Parliament were rejected, triggering another round of selling pressure.
The yen weakened by 0.15% to 108.6 due to unfavourable economic data release which include September exports declining albeit at a softer pace of 5.2% year-on-year from -8.2% y-o-y in August (cons: -4.0%); imports contracting by 1.5% y-o-y from -11.9% y-o-y in August; October’s flash Jibun manufacturing PMI contracted further to 48.5 from 48.9 in September (cons: 48.8), the quickest contraction pace since June 2016.
The majority of Asian ex-japan currencies appreciated against the dollar save for the peso, which slid 0.13% to 51.3 and the baht, down 0.05% to 30.3. The selling pressure in the peso was triggered after the central bank cut the reserve requirement ratio by 100bps to 14% to boost liquidity and support growth. The cut will take effect in December. The won was the week’s best performer, strengthening 0.71% to 1,173 due to strong foreign buying in its equity market, recording an inflow of Us$326mil for the week. The rupiah rose 0.63% to 14,059 amidst Bank Indonesia cutting its policy rate by 25bps to 5%, in line with expectation.
The ringgit appreciated marginally by 0.04% to 4.185, tracking the firmer yuan. Meanwhile, the local bourse closed flat for the week at 1,571 but recorded a net foreign inflow of Rm313mil during the week. Economic release for the week included September’s headline inflation, which came in below expectation at 1.1% y-o-y from 1.5% y-o-y in August (consensus: 1.3% y-o-y) as most of the components in the CPI basket grew at a slower pace.