¨ KRW emerged as the strongest FX performer yesterday, appreciating to 1,128/USD (+0.70%) following the release of President Moon’s dialogues with foreign leaders from China, US, and Japan, which suggested the likelihood of closer ties, particularly with China. Investors await President Moon’s choice for South Korea’s Fin

12 May 2017

Rates & FX Market Update

GBP Retraced from 1.30/USD Following Dovish Leaning BoE Stance

Highlights

¨   Global Markets: Despite higher cut-off yield (May: 3.05%; Apr: 2.94%), demand for the 30y UST new issue was weak, garnering a BTC of 2.19x (Apr: 2.23x) while indirect bidders accounted for the lowest demand since the November Presidential Elections (May: 59.1%; Apr: 64.5%). Meanwhile, strong PPI and favourable jobless claims data buoyed sentiment towards a 25bps mid-June FFR hike, where the easing geopolitical tensions coupled with steady economic growth could continue to bolster a modest climb on UST yields over the medium term; maintain neutral duration view on USTs. GILTs recorded modest gains across the curve, with yields declining by 1-3bps following the BoE’s Carney speech, which reinforced its modestly dovish-leaning forward guidance. Carney reiterated the weaker GBP as the major catalyst for the climb in CPI prints, while citing that household spending and GDP remains soft; BoE downgraded 2017 GDP forecast to 1.9% (previous: 2.0%). GBPUSD retraced lower to 1.2888/USD where we remain of view for any break above the 1.30/USD resistance to be short-lived; maintain neutral view on GBP.

¨   AxJ Markets: Malaysia’s IP expansion eased in March, climbing by 4.6% y-o-y (consensus 4.8%; Feb: 4.7%), dampened by the weak mining and electricity segment. The USDMYR pair shrugged off the softer than expected IP data, treading cautiously below the 4.35 handle where we maintain our neutral view on MYR but revised our YE17 target to 4.25, underscored by returning foreign inflows following market friendly onshore FX policies changes from the Malaysian authorities.

¨   KRW emerged as the strongest FX performer yesterday, appreciating to 1,128/USD (+0.70%) following the release of President Moon’s dialogues with foreign leaders from China, US, and Japan, which suggested the likelihood of closer ties, particularly with China. Investors await President Moon’s choice for South Korea’s Finance Minister, given strong expectations for the President to deliver on his promise of KRW10trn fiscal stimulus to boost the tepid domestic economy; remain cautious on extending long KRW positions.

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