23 May 2017
Rates & FX Market Update
Fed’s Kaplan Reiterated View for 2 More Rate Hikes This Year
¨ Global Markets: In spite of Fed’s Kaplan affirmation towards an additional 2 more FFR hikes this year, yields on USTs inched higher by only 1-2bps across the curve, with investors remaining fixated on rising political woes surrounding President Trump. The upcoming FOMC May Meeting Minutes is likely to reinforce optimism towards US economic outlook and further downplaying the soft US data as “transitory”, which could provide some relief to investors and support USD and UST yields modestly higher over the coming week.
¨ AxJ Markets: Malaysia’s foreign reserves continued to climb higher to USD97.3bn (+USD1.2bn m-o-m), with the position sufficient to finance 7.8 months of retained imports and 1.1x of short term external debt. Despite so, Malaysia’s reserve coverage remained one of the lowest amongst its regional peers, which could limit BNM’s manoeuvrability to smooth out volatility on MYR amid shifting sentiments in the global markets. As such, we prefer to maintain our neutral view on MYR over the medium term despite comparatively attractive yields on MGS vis-à-vis regional peers.
¨ While the GBPUSD pair remained sticky at 1.30 over the past week, underperformance in GBP against global peers remain apparent, particularly against EUR which has recorded 3.37% appreciation against the GBP since 10th May; the regrettable terror attack in Manchester this morning had a marginal impact on sentiment. We see a low likelihood for a convincing rally above the 1.30 handle for the GBPUSD pair, as UK PM May’s party narrowing lead in polls alongside a difficult Brexit compromise could likely overshadow the improving economic data releases. Contrastingly, we expect the PMI data out of EU today to remain strong hence bolster further upside on EURUSD towards 1.1315/1340 the next significant resistance in the short term, compounding on ECB’s Draghi acknowledgment of the improving economic outlook; expect further upside on EURGBP.
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