Page 5 - May 2017

OVERVIEW

Global economic and financial developments

Major advanced economies central banks pursued their accommodative monetary policies
during May 2017. The US Federal Reserve System (US Fed) left its Federal funds rate unchanged
within the range of 0.75-1.00 per cent at its Federal Open Market Committee (FOMC) meeting on
3 May 2017. In its Statement, the FOMC highlighted that the US economic outlook remained firm,
and both job and growth were solid. At its April 2017 meeting, the European Central Bank (ECB)
kept its refinancing rate, marginal lending rate, and deposit facility rate unchanged at 0.00 per cent,
0.25 per cent and negative 0.40 per cent, respectively. The ECB’s monetary policy stance remained
ultra-accommodative despite a recent rise in price pressures in the Eurozone bloc and firming of
economic activity. The euro area is expected to have expanded by 0.6 per cent in 2017Q1, quarter-
on-quarter. At its meeting held on 11 May 2017, the Bank of England held its benchmark interest
rate unchanged at 0.25 per cent and kept its quantitative easing programme intact at GBP435
million. UK’s GDP growth is estimated at 0.2 per cent in 2017Q1 compared to 0.7 per cent in
2016Q4 and was mainly driven by a slowdown in consumer spending.

Against a backdrop of political worries, the US dollar remained on the defensive during
May 2017, while the euro and Pound sterling moved higher. At the start of the month, the
greenback gained support from the US Fed bolstering expectations of another interest rate hike in
June 2017. Subsequently, the US currency declined on the back of political stalemate arising from
investigations into President Donald Trump's ties with Russia, which could hamper progress on tax
cuts and other stimulus measures. In contrast, the euro traded at an average of US$1.1048 in
May 2017 compared to US$1.0712 in April 2017. The single currency rallied and reached a high of
US$1.1247 on 23 May 2017 on improved market sentiment and following the victory of Emmanuel
Macron in France's presidential elections. The euro was also supported by expectations that the
ECB could take a more hawkish tone on its monetary policy stance at its June 2017 meeting. The
Pound sterling gradually reached a peak of US$1.2996 on 22 May 2017 as investors became
confident of a widely expected win for outgoing British Prime Minister, Theresa May, on
8 June 2017 that would provide more room for manoeuvre in Brexit talks. Thereafter, the UK
currency edged lower in the wake of weaker data and a new poll indicating that Theresa May's
Conservative Party might fall short of an overall majority in the upcoming general elections. The

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