The Global Forex Market
The dollar appreciated 0.63% to 97.45 largely driven by resilient economic data which includes December’s The Institute of Supply Management (ISM) non-manufacturing purchasing managers’ index (PMI) coming in better than expected, accelerating to a four-month high of 55.0 from 53.9 in November (cons: 54.5) supported by higher production and inventories, and rising optimism over a potential trade resolution.
Further to this is stronger-than-expected private ADP employment, adding 202,000 jobs in December from 124,000 in November (cons: 160,000), and initial jobless claims continuing to trend downwards to 214,000 as of Jan 4, 2020 from 223,000 in the week prior (cons: 220,000). Besides, the dollar received further impetus following positive trade developments between the US and China, with the latter confirming plans to sign a preliminary deal by early next week. Nevertheless, the concerns over further geopolitical escalation between the US and Iran were short-lived after President Donald Trump said Iran appeared to be “standing down” following Teheran’s attack on the Ain al-asad airbase. However, he added that the US would immediately impose additional economic sanctions on the Iranian regime.
In the commodities market, the Brent crude price shaved off 4.71% to US$65.37 per barrel of oil owing to the easing fears on the imminent Us-iran tension and a surprising crude build-up by 1.2 million barrels (cons: -3.6 million barrels) for the week ending Jan 3 as reported by the Energy Information Administration.
The euro depreciated 0.49% to 1.111 due to a stronger dollar. Nevertheless, economic release during the week was rather mixed, which includes December’s European Union (EU) Markit Services PMI coming in at 52.8 compared to 51.9 (cons: 52.4); December’s EU flash inflation being in line with expectations at 1.3% year-over-year (y/y) from 1.0% y/y in November, while core inflation remained unchanged at 1.3% y/y; December’s business confidence coming in at -0.25 from -0.21 in November (cons: -0.16); December’s consumer confidence coming in at -8.1 versus -7.2 in November (cons: -8.1); and November’s EU unemployment rate, which came in at 7.5%, remaining unchanged from the month prior.
The pound slid 0.12% to 1.307, especially after Bank of England governor Mark Carney delivered a dovish tilt speech, hinting that a potential rate cut could materialise in 2020. With the clock ticking towards Brexit on Jan 31, the Commons finally passed British Prime Minister Boris Johnson’s Brexit bill. The country is now expected to leave the block with a deal. Also, December’s Markit/cips Services PMI was up at 50.0 versus 49.3 in November (cons: 49.2).
As demand for safe-haven currencies falters, the Japanese yen depreciated 1.32% to 109.5. The impact of poor Jibun Bank’s December composite PMI - which fell further to 48.6 from November’s 49.8 (cons: 49.8) - overshadowed the improving consumer confidence index that rose to 39.1 in December from November’s 38.7 (cons: 38.0).
The majority of Asia ex-japan currencies appreciated against the dollar, save for the baht and Singapore dollar which fell 0.38% to 30.288 and 0.18% to 1.352, respectively. The outperformer for the week was the Indian rupee that rose 0.83% to 71.215 as concerns of higher crude oil prices dwindled, followed by the Philippine peso which was up 0.75% at 50.693.
The ringgit ended the week stronger by 0.28% to 4.091, tracking the strengthening yuan. November’s industrial production came at 2% y/y from 0.3% y/y in November with market expectations at 1% y/y. The FBM KLCI, however, lost 1% to 1,596 as the local equities market took a beating from the escalating Middle East tension. Besides, foreigners turned net sellers albeit at a smaller net outflow of Rm28mil.