Ringgit Falls to Two-Week Low on Prospect of U.S. Rate Increase

Malaysia’s ringgit declined to a two-week low after Federal Reserve Chair Janet Yellen said U.S. interest rates could rise sooner than anticipated.

While reiterating that stimulus was still required, Yellen told U.S. lawmakers yesterday that “increases in the federal funds rate target likely would occur sooner and be more rapid than currently envisioned” should improvements in the labor market exceed projections. Malaysian inflation was near a five-month low in June, a government report showed today.

“Markets are reacting to Yellen’s testimony last night which raised the prospect of earlier rate hikes,” said Khoon Goh, a Singapore-based strategist at Australia & New Zealand Banking Group Ltd. “This led to a stronger dollar, which flowed through into the Asian open.”

The ringgit fell 0.2 percent to 3.1873 per dollar in Kuala Lumpur, according to prices from banks compiled by Bloomberg. It reached 3.2015, the lowest since July 3. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was steady at 5.19 percent.

The Bloomberg Dollar Spot index rose 0.1 percent, after gaining 0.2 percent yesterday, which was the biggest increase since July 2.

Malaysian consumer prices increased 3.3 percent in June from a year earlier, after May’s 3.2 percent advance and matching the median forecast of economists in a Bloomberg survey, official data showed today.

Inflation is likely to remain above the central bank’s long-run average due to higher domestic cost factors, it said in a July 10 statement after raising the policy rate by 25 basis points to 3.25 percent.

The yield on Malaysia’s 4.181 percent sovereign bonds due July 2024 fell two basis points, or 0.02 percentage point, to 3.96 percent and has dropped eight basis points so far in July, data compiled by Bloomberg show.

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