The ringgit depreciated, as the US dollar regained its strength, amid the dovish tone on inflation by the European Central Bank (ECB) and Bank of England (BOE).
At 9am on Friday (Feb 3), the ringgit had eased to 4.2580/2640, against the greenback from Thursday’s close at 4.2445/2490.
On Thursday, both the ECB and the BOE announced interest rate hikes of 50 basis points.
The euro and sterling slipped against the dollar today as markets took a dovish cue from policymakers at the European Central Bank and the Bank of England, who said inflationary pressures in their economies have become more manageable.
Elsewhere, the greenback broadly advanced on the back of its Atlantic counterparts’ decline, reversing its losses earlier in the week.
The pound slid 0.15 per cent to a more than two-week low of US$1.2206 in early Asia trade, after falling 1.2 per cent in the previous session, its largest daily decline in a month.
The euro was last 0.16 per cent lower at US$1.0893, after tumbling 0.7 per cent yesterday to move further away from its 10-month peak of US$1.1034.
Yesterday, the ECB and BoE each raised interest rates by 50 basis points as expected, with the latter signalling the tide was turning in its battle against high inflation.
While the ECB explicitly alluded to at least one more hike of the same magnitude next month and reaffirmed its commitment in battling high inflation, President Christine Lagarde acknowledged the euro zone outlook had become less worrisome for growth and inflation.
“The ECB was a little bit more dovish than markets had previously expected … (while) the Bank of England has given a small hint that they might be close to finishing their tightening cycle,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).
Remarks from the ECB and the BoE came a day after Federal Reserve Chair Jerome Powell similarly said in a news conference following the Fed’s 25bp rate hike that the “disinflationary” process in the United States appeared to be underway.
The dollar today recovered from a heavy selloff in the aftermath of Powell’s speech, and against a basket of currencies, the US dollar index rose 0.03 per cent to 101.82, away from Wednesday’s nine-month low of 100.80.
Today’s nonfarm payrolls report will be the next major test of the Fed’s fight against inflation. Signs are still pointing to a tight labour market, with the number of Americans filing new claims for unemployment benefits dropping to a nine-month low last week.
In other currencies, the Aussie fell 0.11 per cent to US$0.7068, having lost 0.86 per cent yesterday, while the kiwi was little changed at US$0.6475.
The comments from policymakers following a slew of central bank meetings this week have markets seizing on signs that interest rates could be close to peaking in most major economies.
“We’re starting to see central banks converging to a pattern now … the major central banks are definitely approaching the end of their tightening cycles,” said CBA’s Kong.
An imminent peak in US rates has provided some relief for the Japanese yen JPY=EBS, which last year crumbled under pressure from rising interest rate differentials against Japan’s low interest rate environment.
The yen was last marginally higher at 128.66 per dollar and was headed for a weekly gain of nearly 1 per cent, reversing two straight weeks of decline.
