Global Foreign Exchange Market

THE dollar’s performance this week revolved around Powell’s view on the number of rate hikes necessary in 2018 to prevent the economy from overheating. After his first congressional testimony on Tuesday, the dollar rose to February’s high of 90.613, and then declined to 90.324 by the end of the week, capping the week’s gain at 0.5%. This resulted from the Fed chair commenting that pick-up in wages and signs of an overheating have not materialised. Disappointing January durable goods orders at -3.7% m/m from 2.6%m/m previously, and January new home sales which came in at -7.8%m/m (a second consecutive month of negative growth) produced minimal drag on the greenback.

Brent crude oil seems unable to keep its momentum going, losing 5.2% of its value in the beginning of the week to close at US$63.83/barrel. US oil production has returned with a vengeance with data reported by the EIA showing a significant build-up of US crude inventories; three million barrels for the week ending Feb 16. Besides, support from the demand side is lacking because global demand tends to be relatively more subdued before the summer months begin.

The dollar had the upper hand against the euro this week which depreciated 0.2% to 1.2267. ECB’s Mario Draghi commented that the need for the monetary stimulus is still persistent and his stand was reinforced further by February flash inflation which rose slowly at 1.2% year-on-year (y-o-y), down from 1.3% y-o-y in the previous month. Meanwhile, January Business Confidence eased to 1.48 from 1.56 previously, indicating economic conditions are currently in a state viewed as a glass half empty.

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