Global Forex Market
THE dollar witnessed a sell-off midweek after the Fed turned rather dovish during its FOMC meeting — tweaking its dot plot projection to zero hike for 2019 from two hikes back in December 2018, signalling the end of quantitative tightening (QT).
The Fed also altered its official projection for major economic data in 2019 — GDP slashed to 2.1% (prevous: 2.3%); PCE (Fed’s preferred inflation gauge) revised downwardly to 1.8% from 1.9%; and unemployment rate revised to 3.7% from the earlier projection of 3.5%. However, the dollar pared losses by the end of the week owing to Brexit-related noises as well as the upbeat economic figures released this week such as initial jobless claims which edged down to 221,000 from 230,000 a week earlier; and the Philadelphia Fed manufacturing index in March rising to 13.7 from -4.1 the previous month (consensus: +4.5).
On a separate note, US-China trade tensions re-emerged after President Trump suggested that trade tariffs would continue for a “substantial period” to ensure that China kept its terms of the agreement. By the end of the week, the dollar fell 0.03% to 96.5.
For the commodity market, Brent crude oil rose 0.47% to US$67.70/bbl, posting a year-to-date (YTD) high as Opec reaffirmed its commitment on the supply cut for at least 1H2019 with the next decisive meeting scheduled on June 2019 which will determine the production target for rest of the year. Furthermore, the unexpected drawdown from the EIA also underpinned the price. The US inventory was lower by 9.59mil barrels for the week ended March 15, beating the market expectation of a 0.07mil increase.
The euro edged up 0.33% to 1.137 against the weaker dollar amid a persisting Brexit uncertainty. Meanwhile, economic release for the week includes EU economic sentiment coming in better than expected in March at -2.5 from -16.6 in February (cons: -11); 4Q2018 wage growth up 2.3% y-o-y, same rate as 3Q2018; and trade surplus narrowing
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The pound was weighed down by the Brexit saga, losing 1.12% to 1.311 as the House speaker blocked Prime Minister Theresa May’s plan of a third “meaningful” vote ahead of the EC Council meeting at the beginning of the week. ‘
The House speaker required a “substantially” different deal from the first two times which were voted down. Moreover, May’s request to extend the Brexit deadline from March 29 to June 30 has been rejected by the EU as it insisted that there would be no extension beyond May 22, the date of the European election. With no deal being agreed to and the extension request rejected, it intensified the possibility of a disorderly Brexit which pushed the sterling down by 0.7% in a day. However, an unconditional extension offer to 12 April from the bloc kept the sterling afloat and also gave time to the UK parliament to work out what to do. In the meantime, Bank of England unanimously decided to leave its policy rate unchanged at 0.75%.
The yen appreciated by 0.55% to 110.8 largely on the back of a weaker dollar, overshadowing the release of Bank of Japan’s (BoJ) meeting minutes which were as deemed rather dovish. The meeting minutes highlighted most BoJ members agree it was appropriate to maintain the BoJ’s current stimulus programme. Meanwhile, economic release for the week were slightly disappointing i.e. February exports came in at -1.2% y-o-y from -8.4% y-o-y in January (cons: -0.9%); core inflation slowed down to 0.7% y-o-y from 0.8% y-o-y in January; and Nikkei Manufacturing PMI est stayed flat at 48.9 points in March.
The majority of Asia ex-Japan currencies strengthened against the greenback with the rupiah emerging as the best performer, up 0.7% to 14,140 amid Bank Indonesia keeping its interest rates unchanged at 6%. The won and yuan followed suit, posting a gain of 0.4% to 1,127 and 0.21% to 6.69, respectively. However, the Indian rupee weakened by 0.44% to 68.8 despite a continuous foreign inflow of US$1.3bil into its equity market.
The ringgit appreciated firmly by 0.38% to 4.061 largely underpinned by the weaker dollar. Besides, the ringgit was partly supported by foreign flows, recording a net inflow of RM90mil. However, the KLCI dropped 1.6% to 1,664 by the end of the week. On the data front, inflation print came in at -0.4% y-o-y in February from -0.7% y-o-y in January.