Thursday, March 16, 2017

Yellen Delivered 25bps FFR Hike with a Less Hawkish Stance

16 March 2017

Rates & FX Market Update

Yellen Delivered 25bps FFR Hike with a Less Hawkish Stance


¨   Global Markets: The USD registered a sharp fall post FOMC, with the DXY index declining by 0.94% yesterday. Despite the positive economic outlook highlighted by the Committee, the median economic projections was kept largely unchanged from the forecast released in December, hence leaving the dot plot unchanged, where the median forecast remained at 2 more FFR hikes this year. Fed’s Yellen reiterated her view for a gradual tightening as economic outlook continued to reinforce an accommodative policy over the year. Yields on USTs slumped by 7-13bps overnight, as investors increasingly shifted away from expectations of a steeper FFR trajectory, still awaiting further details from President Trump’s tax plan and infrastructure investment spending; keep a neutral duration view on USTs.
¨   AxJ Markets: AxJ currency pairs recorded strong gains in the early trading session this morning, largely driven by the retracement in USD post FOMC. Notably, the USDSGD pair tested but failed to break the 1.40 support, as concerns of the sustainability of external export demand continue to limit optimism on the outlook of the externally dependent nation. While we see a low likelihood for MAS to ease via a re-centering this year, we prefer to keep a mildly bearish view on SGD over the year, as risks on economic outlook remains tilted to the downside.
¨   Weakness on USD alongside Dutch exit polls indicating a healthy lead by the Liberal Party ahead of far-right Freedom Party supported strength on the EUR to 1.0736/USD (+1.23%). While a few months would be needed for Netherland to form a coalition government caused by the fragmentation of the political landscape, the threat of an EU referendum has been considerably reduced which supported a rebound on the bloc’s currency overnight. We continue to keep our cautious stance towards EUR over the near term ahead of the upcoming French elections, with tight race elevating the likelihood of an electoral surprise; maintain mildly bearish EUR.

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