Following another large rate hike, USD appreciated slightly against major currencies last week; the DXY dollar index ended at 110.88 on Friday, only +0.1%wow higher than the prior week. While some concluded the Fed hinted at a possible pivot as early as Dec-22, the widening interest differentials boosted USD demand last week. This was also driven by more rate hikes as indicated by the Fed to contain stubbornly high inflation.
As the dollar strengthened following the FOMC meeting, the euro and pound sterling closed the weak lower by -0.1%wow to USD0.997 and -2.0%wow to USD1.138, respectively. The pound sterling was also dragged down by concerns over the UK economic outlook due to a warning from the Bank of England after the aggressive tightening during the week.
The strength in the dollar mostly led to the weakening of the ringgit last week, with another weekly depreciation of -0.6%wow to RM4.748, the weakest level since the Asian Financial Crisis. The Ringgit exchange rate was more influenced by the financial market developments because rising oil prices failed to push the ringgit higher; Brent crude rose another +2.9%wow to USD98.57pb by Friday (previous week: USD95.77pb).
As the Fed’s pivot to taper down the pace of policy tightening will take place later as more rate hikes are needed, the strong dollar will continue and therefore reduces the possibility for the ringgit to move towards RM4.45 by year-end. In other words, the ringgit would possibly strengthen towards RM4.65 by end-2022.
