Ringgit strengthens on growing expectations of US rate cut

[MALAYSIA] On Monday, March 10, 2025, the Malaysian ringgit opened stronger against the US dollar, continuing its positive momentum amid growing expectations that the United States will soon cut its Federal Funds Rate. This shift in market sentiment, linked to signs of weakening in the US job market and the overall economic outlook, has had a significant impact on the value of the ringgit, alongside broader movements in global currency markets.

Rising Optimism for a US Rate Cut

The US Dollar Index (DXY) fell sharply to 103.830 points, signaling the possibility of a weakening US dollar and supporting the local currency's appreciation. The outlook for a Federal Reserve rate cut has become more pronounced as US economic indicators suggest a slowing economy. For example, the US labor force participation rate dropped to 62.4%, its lowest level since January 2023, while unemployment edged up to 4.1% in February from 4.0% previously.

Dr. Mohd Afzanizam Abdul Rashid, the Chief Economist at Bank Muamalat Malaysia Bhd, emphasized that these developments could create an environment of heightened uncertainty for the US economy. According to Rashid, "The degree of economic uncertainties has heightened as the tariff policies can be seen as inconsistent, leading to difficulties in assessing the impact on the broader economy." This uncertainty has further contributed to a more cautious market sentiment.

Positive Momentum for the Ringgit

The ringgit, which was trading at 4.4085/4210 against the US dollar, reflects a clear positive trend. Analysts attribute the local currency's rally to several factors. Aside from the weakening US dollar, market sentiment is also influenced by geopolitical developments and US monetary policy shifts. The easing of the US Federal Reserve’s policy could result in more capital inflows into emerging markets, including Malaysia, thus benefiting the ringgit.

The currency's appreciation was also evident across other major currencies. The ringgit surged against the British pound to 5.7011/7172 from 5.7070/7115 at the previous week's close. Similarly, the local currency saw gains against the euro, strengthening to 4.7876/8012 from 4.7903/7941, and performed well against the Japanese yen, rising to 2.9872/9961 from 2.9909/9935.

Furthermore, the ringgit’s performance against key ASEAN currencies was also positive, with slight gains against the Singapore dollar, Thai baht, and Indonesian rupiah.

The Role of Global and Domestic Factors

While expectations of a US rate cut have played a pivotal role in the ringgit's performance, local economic data and global events are also influencing market dynamics. As noted by Dr. Rashid, "The US economy is in a period of transition," citing comments made by former President Donald Trump in a recent interview. Trump highlighted the challenges posed by inconsistent tariff policies, which have contributed to economic uncertainty.

The weakening US labor market, coupled with ongoing economic uncertainties, has led to cautious sentiment in the financial markets. Given the close link between the US and global economies, any shift in US policy will likely have ripple effects, particularly in emerging markets like Malaysia. With a potential US rate cut on the horizon, investors are keenly eyeing developments that could lead to more favorable conditions for the ringgit and other regional currencies.

Market Sentiment and Future Outlook

The continued strength of the ringgit is indicative of broader trends in the forex market, with analysts predicting that the local currency could maintain its positive trajectory if the US Federal Reserve indeed signals a shift in monetary policy. The current market sentiment is likely to remain defensive in the short term, as investors weigh both the implications of a US rate cut and the ongoing uncertainties in the global economy.

Looking ahead, the Malaysian currency's performance will be closely tied to developments in both the US and global economic landscapes. While the expectation of a rate cut in the US is favorable for the ringgit in the short term, other factors, such as domestic economic policies and the geopolitical environment, will continue to play a role in shaping the currency's future movements.

The stronger opening of the ringgit on March 10, 2025, underscores the significant impact of US Federal Reserve policy expectations on global forex markets. As US economic indicators suggest a weakening trend and potential rate cuts, the Malaysian ringgit has benefited from a surge in positive sentiment. Dr. Mohd Afzanizam Abdul Rashid’s insights into the broader economic uncertainties and market dynamics highlight the complex interplay of domestic and international factors that will shape the currency's outlook.

As global economic conditions evolve and markets continue to adjust, the ringgit’s strength will likely remain influenced by the direction of US monetary policy, broader economic developments, and market sentiment. Investors and market participants will continue to monitor these trends closely as they navigate the dynamic world of foreign exchange.