FW: RHB FIC Rates & FX Market Update - 30/10/14

30 October 2014

Rates & FX Market Update

FOMC Voted 6-1 to End QE3, Focusing on Improvements in the Labour Market

Highlights

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¨    The UST curve closed flattened amid a volatile trading session while USD gained against major pairs. The FOMC statement erred on the bullish side, generally focused on the strong improvements form the labour market while shrugging off the declining trend in CPI and uncertainty surrounding global momentum; the meeting ended with a 6-1 vote to end the QE3 purchase program while keeping the Fed Fund rate at its current low level. In UK, yields on Gilts generally held steady while GBPUSD declined sharply by 0.73% to 1.60 overnight as investors adjusted expectations for a later rate hike following BoE’s Cunliffe dovish comments, contrasting from Fed’s overnight hawkish tilt. In Europe, demand for 10y Bunds remained weak, falling short of the planned issuance while EU maintains supportive of French and Italian draft budgets despite UK’s dissent over its increased contribution; EGBs were mixed overnight with yields on Bunds edging higher by 1-2bps.

¨    South Korean IP fell short of expectations despite a modest rebound following strong trade data released early yesterday; strength in KRW is expected to yield to the strengthening USD this morning following overnight FOMC event. Meanwhile, following disappointments from Indonesia’s first parliament meeting, Finance Minister Brodjonegoro assured investors that plans for fuel subsidy cut remains in place, with price change to take immediate effect following announcements; IDR remained event and sentiment driven, surging +0.71% overnight, away from its 12,000/USD resistance.

¨    GBP continued to decline against the USD this morning, nearing its 1.5947 support. A shift in investors’ expectations over the timing of both the Fed’s and BoE’s interest rate hike continue to dictate the movement of the GBPUSD pair where we see the likely hawkish tilt by the FOMC supporting the broad USD rally, with GBPUSD likely to remain subdued below 1.60 this year.