FW: RHB FIC Rates & FX Market Update - 25/7/14

25 July 2014

Rates & FX Market Update

IMF Raises UK 2014 Growth Forecasts; South Korea 2Q GDP Weaker than Expected

Highlights

¨    Varied performance persisted among DM govies overnight where USTs added between 2-4bps after initial jobless claims printed better than expected amid positive corporate figures, signaling a pickup in the US economy. Additionally, the IMF raised the UK’s 2014 growth forecast from 2.8% to 3.2%, sending yields on Gilts 3-5bps higher while the GBPUSD slid 0.31% ahead of today’s 2Q GDP release where we expect a positive print to strengthen the pair. The EURUSD touched an intraday high 1.3485 in response to the better than expected preliminary Eurozone PMI prints while gains among EU govies were skewed towards PGBs and BTPs suggesting heightened risk appetite. The USDJPY weakened to 101.81 (+0.27%) on a downtick in manufacturing PMI while June’s CPI eased to 3.6% y-o-y (-0.1%).

¨    Asian currencies mostly reversed overnight gains with both the USDKRW (+0.49%) and USDSGD (+0.32%) pairs topping the underperformance following weaker than expected preliminary 2Q GDP prints for South Korea of 3.6% y-o-y (-0.3%) while KTBs bear steepened, adding 2-4bps. 1-month NDFs on the KRWUSD rose 0.6% overnight to 1032.1 sending the 3m implied volatility 29bps higher. Meanwhile, response to Hong Kong’s larger trade deficit print in June in the HKD and HKGB space was largely muted as exports growth surpassed imports with both exceeding expectations

¨    EURUSD continued its decline after a positive kneejerk reaction to upbeat PMI prints for the region where the pair touched an intraday high of 1.3485 before settling lower towards Wednesday’s close of 1.3466. The pair continues to trade along the lower Bollinger band and may trade towards the near term support of 1.3441 on weaker German IFO expectations.