Global forex market
THE safe-haven dollar, pared losses during the week, closing lower by 0.21% at 96.73. The dollar received a catalyst mid-week after the Federal Reserve (Fed) delivered a bleak outlook during its Federal Open Market Committee (FOMC) meeting, downplaying a V-shaped recovery in the economy with FOMC members projecting real gross domestic product (GDP) to decline by 6.5% y/y in the fourth quarter of 2020 (Q4) (median estimate) before the economy rebounds by 5% in 2021.
Besides, the FOMC members expect unemployment rate to average at 9.3% in Q4 and 6.5% by end2021; and core-inflation at 1.0% y/y at Q4 (2021: 1.5%). Nevertheless, the Fed maintained its monetary policy with its target rate of 0.00–0.25% as expected; and forecast its policy rate to stay at zero until 2022. It pledged to continue its asset purchase programme until the economy recovers from the coronavirus pandemic. In addition, the dollar received additional impetus towards the end of the week following renewed concerns that a second wave coronavirus infection could be taking hold in some states.
Amidst the global risk-off sentiment, Brent plunged 8.87% to US$38.55 per barrel. Apart from that, some selling pressure came after the EIA reported a 5.7 million increase in crude inventory for the week ending June 5 compared to a decline of 2.1 million in the previous week (cons: -1.7mil).
The euro pared gains, closing marginally higher by 0.06% to 1.13 as the risk-on mode falters. Separately, European Central Bank president Christine Lagarde this week signalled that the central bank is willing to play a more active role in responding to a critical ruling by Germany’s constitutional court over its monetary policy.
The pound weakened by 0.52% to 1.26 due to negative Brexit headlines. The fourth round of trade talks between the UK and the EU ended with little progress, despite Britain having only until the end of the month to request an extension to the transition period which is due to end after December 2020.
The yen rises to a one-month high – up 2.48% to 106.9 – due to diminishing expectations that the global economy would recover swiftly from the coronavirus pandemic. The demand for the yen further intensified following the renewed concern over the jump in new coronavirus infection.
The majority of the Asia ex-japan currencies appreciated against the dollar with the baht coming in as the outperformer during the week – up 1.39% to 31.07. Meanwhile, the rupiah emerged as the underperformer of the week, depreciating 1.02% to 14,020 amidst its local bourse index recording a net foreign outflow of Us$38mil. The ringgit appreciated by 0.49% to 4.25 as of Thursday. However, the ringgit witnessed a knee-jerk sell-off on Friday, trading at 4.27 at the time of writing after risk-averse sentiment permeated global markets.