Fed’s Fischer Endorsed FOMC Estimates for Another 2 More FFR Hike

29 March 2017

Rates & FX Market Update

Fed’s Fischer Endorsed FOMC Estimates for Another 2 More FFR Hike

Highlights

¨   Global Markets: Fed’s Fischer endorsed the FOMC’s median estimate for another 2 more FFR hike this year, adding that central bank continues to keep a close watch on US fiscal plans without prejudging the outcome. Rally on USTs eased yesterday, with yields on 10y retracing higher to 2.42%, bouncing off the bottom of the 2.32-2.62% trading range. With core PCE climbing higher towards FOMC’s long term target of 2%, the ability for Trump’s administration to fulfil its tax and spending promises could further cement FOMC’s hawkish inclination; opportunities to take profit on 10y USTs below 2.40% appear attractive. Meanwhile, GBPUSD failed to hold above the 1.25 handle ahead of Prime Minister May’s schedule to trigger Article 50 and commence Brexit negotiations. While knee jerk reaction post announcement could trigger a downward move on the GBPUSD pair, we remain wary on opportunities to bottom pick in the day ahead as the likelihood of tough stance from EU officials could continue to support a mildly bearish GBP over the medium term, overshadowing BoE’s incremental hawkish stance.

¨   AxJ Markets: Over in Malaysia, BNM has announced plans to ease regulations on short selling of government bonds to bolster trading activity on the bond market following the FX measures imposed last year to discourage offshore NDF activity. We opine for the new measure to likely deepen the domestic financial market, with liberalisation measures likely to boost demand back to the MGS market. We reiterate our neutral duration view on MGS, underscored by the attractive yields vis-à-vis regional peers.

¨   While the key focus last night remained on the GBP ahead of the Article 50 trigger from UK, concerns on possible changes in the trade and business landscape exerted bearish pressure on EUR, supporting a modest decline on EURUSD to 1.0813 below the defined 1.0970 resistance. With a quiet economic calendar in EU today, we expect EUR to take directional cues from GBP as Brexit commences, keeping a mildly bearish stance on EUR over the medium term against the backdrop of multiple Eurozone elections while ECB officials continue to downplay the likelihood of monetary tightening citing the need for stabilising inflation.

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