1 The Forex Market in March 2007 US Dollar : USD The US dollar in March continued to weaken from prior month compared with the euro and the yen with exchange rates averaging at US$ 1.3251 per euro and JPY 117.33 a dollar or down 1.25 and 2.51 per cent respectively. However, the dollar strengthened slightly against the pound with exchange rate averaging at US$ 1.9480 per pound or up 0.5 per cent. The main reason which caused the dollar depreciation was an increase in the Japanese rate and the EU rate by another 0.25 percentage point while the US economic figures mainly indicated a gradual slowdown as expected. Meanwhile, due to a slowdown in US inflation and a low rate of unemployment, the US FOMC decided to keep the Fed Funds rate at 5.25 per cent at the latest FOMC meeting. US economic figures announced recently included : - Core inflation rate year on year in February remained stable at 2.7 per cent as in prior month while headline inflation rose 2.4 per cent compared with 2.1 per cent a month earlier. - Economic growth rate in the fourth quarter increased 2.5 per cent from 2.0 per cent in the third quarter, higher than the projected rate of 2.2 per cent. - Unemployment rate in March declined 4.4 per cent compared with 4.6 per cent in the previous month, the lowest in several years. - Trade deficit in February dropped US$ 58.4 billion from US$ 59.1 billion in prior month. - Current account deficit in the fourth quarter declined US$195.8 billion from US$229.4 billion in the previous month. - Non-farm payrolls in March rose to 180,000 jobs, up from 97,000 jobs in an earlier month. - Net long-term flows in January were US$74.6 billion after a sharp drop of US$14.7 billion a month earlier. - Oil prices in NYMEX market in March adjusted upward in the range of US$ 58-66 a barrel, almost the same price as the end of last year which was above US$ 60-75 a barrel caused by a tension in the Middle-East as 15 English soldiers were captured by Iranian government. - Consumer confidence index in March declined to 107.2 from 111.2 in prior month.
2 - US PMI index in March dropped to 50.9 per cent from 52.3 per cent in the previous month. - Non-manufacturing index in March dropped to 52.4 per cent from 54.3 per cent a month earlier. The dollar in April is expected to move in a narrow range as the central bank of Japan and the European Central Bank are likely to keep their rates stable for the next 1-2 months. As a result, the Japanese yen and the euro will not strengthen too much. Meanwhile, the US economic figures mainly indicate a gradual economic slowdown as expected including a slowdown in inflation rate and the lowest unemployment rate in several years. It is expected that the US FOMC will retain the Fed Funds rate at 5.25 per cent throughout the second quarter. Euro : EUR The euro in March averaged US$1.3251 per dollar or strengthened 1.25 per cent. A main factor contributed to the euro appreciation was an adjustment upward of the ECB rate to 3.75 per cent at the ECB meeting in February. In addition, the European economy remained strong though Germany has increased its domestic value added tax rate since the beginning of this year. The economic figures announced included the following : (since January 1, 2007, Slovenia has been included in the Euro-zone making 13 Euro countries at present) - The real GDP in the fourth quarter grew 3.3 per cent compared with the same period last year and increased from 2.7 per cent in previous quarter. This showed a continued economic growth of the Euro-zone. Thus, GDP in the year 2006 expanded 2.6 per cent compared with 1.4 per cent in prior year. - The current account surplus in January was EUR 5.0 billion compared with EUR 4.6 billion in an earlier month. - Unemployment rate in February was 7.3 per cent, down slightly from 7.4 per cent in a month earlier, a continued decline from the end of last year. - German indicator of economic sentiment in April improved very much to 16.5 points from 5.8 points a month earlier, but still a low rate compared with 33.1 points in the past. - German Ifo business climate index in March rose slightly to 107.7 from 107 in the previous month.
3 - The inflation rate year on year in March was 1.9 per cent, up from 1.8 per cent in the previous month. - The trade deficit in January was EUR 7.8 billion, down from EUR 2.7 billion in prior month. It is likely that the euro will strengthen in April due to a narrow margin of interest rates between the euro and US dollar. It is also projected that the ECB rate will increase by another 0.25 percentage point within the third quarter and the ECB will focus on an adequate liquidity while maintaining its economic stability. In addition, recent economic figures have indicated strong economy of the EU though the value added tax rate has been adjusted upward in Germany and Italy. Japanese Yen : JPY The Japanese yen in March averaged JPY 117.33 a dollar or strengthened 2.51 per cent. By the end of February, the yen touched the strongest level at the range of JPY 115-116 a dollar after partly closing the Yen Carry Trade (the yen borrowing with low interest rate to invest in foreign assets which yields higher rate of return). Therefore, the yen in March moved in the narrow range of JPY 116-118 per dollar. Economic figures announced recently included : - Japanese unemployment rate in February remained stable at 4.0 per cent, the same rate as in prior month. - Household consumption index in February expanded 0.4 per cent while consumption growth rate in prior month was 0.9 per cent. The consumption growth was a good sign as there was the shrinkage of consumption last year. - The trade surplus in February was JPY 1.12 trillion, up from 0.11 trillion yen in prior month. - The current account surplus in February was JPY 2.42 trillion, up from JPY 1.19 trillion a month earlier.
4 - The real GDP in the fourth quarter expanded 1.8 per cent compared with the same period last year and increased from 0.8 per cent in the previous quarter, but lower than the projected rate of 2.3 per cent. - Japanese core inflation rate in February declined from 0 per cent a month earlier to a deficit of 0.1 per cent while headline inflation also dropped 0.2 per cent from 0.1 per cent in prior month showing a possible return of deflation. - Japanese manufacturing index in February grew 2.6 per cent compared with the same period last year and 4.0 per cent in prior month. It is expected that the yen will weaken in April by moving in the range of JPY 117-120 per dollar. A major factor which will affect the yen value is an adjustment upward or downward of global capital market. If the global capital market remains strong, the speculation through the Yen Carry Trade will continue and cause the yen value to weaken further. But, by contrast, if there is a decline in the global capital market, the debt arising from Yen Carry Trade has to make a quick repayment which will cause the yen to strengthen rapidly. Another factor to be concerned is that inflation has already become a deficit. It has taken more than a decade for the Japanese economy to end its deflation. Therefore, inflation rate must be watched closely and it will affect the policy of the central bank whether to increase its rate or not at the next meeting. Thai Baht : THB The Thai baht in March averaged Baht 35.06 per dollar or strengthened 1.94 per cent from prior month. After the BOT had issued the measure of 30 per cent reserve (except direct foreign investment and export), the baht remained in the range of Baht 35.40-36.00 a dollar during the first two months of the year. Later, on the 15 th of March, the central bank had loosened the measure of 30 per cent reserve by allowing the swap of foreign exchange. Furthermore, export growth has continued strongly at the rate of 17.8 per cent and 18.4 per cent in January and February respectively, resulting in a surplus in the current account balance. The baht therefore strengthened sharply in the first half of March. In the second half of the month the BOT had
5 asked for cooperation from commercial banks to retain the US dollars holding at the same amount as in January. Economic figures announced recently included the following: - The trade surplus was US$ 808 million in January compared with US$ 732 million in prior month while the current account surplus was US$ 1,536 million, up from US$ 1.215 million a month earlier. - The inflation rate declined 2.0 per cent in March from 2.3 per cent in the previous month and core inflation in the same month was 1.3 per cent, down from 1.4 per cent in an earlier month. - The consumer confidence index dropped 78.5 in March from 79 in February, lower than 100 for the 33 rd consecutive month and the lowest in 5 years. - The private consumption index in January shrank 0.8 per cent while in prior month it grew 1.4 per cent. - The private investment index in January shrank 0.8 per cent while in December it expanded 0.3 per cent. - The industrial capacity utilization in February declined to 73.5 per cent from 76.3 per cent in prior month. The Thai baht in April is expected to remain in the range of Baht 34.70-35.10 per dollar after the new Finance Minister, Dr.Chalongphob has signaled the policy of a cut in interest rate to delay the baht appreciation. Meanwhile, there is a decline in private consumption index and private investment index. The Thai MPC meeting in April therefore decided to cut interest rate by up to 0.5 percentage points as many requested. It is expected that dividends from the listed companies will be transferred to foreign countries by about Baht 30-40 billion during April and May. In addition, during the Songkran festival many Thais prefer to travel out of the country. These factors may slow the baht appreciation.
6 The real effective exchange rate index in February edged up to 88.97 points from 88.96 points or by 0.01 per cent from the previous month while nominal effective exchange rate index in March was 78.30 points, up by 1.20 per cent from 77.36 points in an earlier month..