Why has the ringgit strengthened against the US dollar for 10 days?

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The Ringgit's Ten-Day Rally Against the US Dollar

The Malaysian ringgit has experienced a sustained appreciation against the US dollar for ten consecutive days, driven by investor expectations of potential interest rate cuts by the US Federal Reserve (Fed) in September. This anticipation stems from recent economic indicators from the United States that suggest a cooling economy.
Weakening US Economic Indicators

Recent data from the US has pointed towards a softening economic landscape. The US Institute for Supply Management (ISM) index for the manufacturing sector declined to 46.8 points in July, falling short of the anticipated 48.8 points. Survey responses indicated a slowdown in consumer demand and a strategic shift by some businesses towards reducing their inventory levels. Furthermore, claims for jobless insurance in the US saw an increase to 249,000 in the past week, up from 235,000 previously, signalling a weakening labour market.
Federal Reserve Policy Expectations

These economic signals appear to bolster the view that the Federal Reserve may opt to reduce interest rates in September. Such a move would be aimed at ensuring the US economy achieves a "soft landing" after a prolonged period of a "restrictive monetary policy stance." The Fed, as the central bank of the United States, plays a crucial role in managing the nation's monetary policy, which includes setting the federal funds rate.
Narrowing Rate Differential and Undervaluation

The ringgit's positive performance against the US dollar is further supported by the anticipated narrowing of the "rate differential" between the US federal funds rate and Malaysia's overnight policy rate. A narrowing rate differential typically makes a currency more attractive to investors. Analysts suggest that the ringgit is currently undervalued, indicating potential for further upward movement. However, short-term corrections are possible as traders may seek to secure profits from the recent gains.

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Why has the ringgit strengthened against the US dollar for 10 days?

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