Senate’s Rejection of a Full Obamacare Repeal Weighed on USD

28 July 2017

Rates & FX Market Update

Senate’s Rejection of a Full Obamacare Repeal Weighed on USD

Highlights

¨   Global Markets: Whip saw movements was seen on USD yesterday, where stronger Durable Goods Orders supported brief gains on the dollar prior to Senate’s rejection of a full Obamacare repeal weighed on appetite for the USD, taking DXY to fresh 13-month low of 93.152; subsequent modest recovery on the USD was likely due to month-end profit taking on EUR. Obstacles in passing President Trump’s pro-growth campaign promises are likely to further weigh on USD and UST yields over the coming weeks, overshadowing the moderately stronger 2Q GDP print due later today; maintain neutral duration on USTs.

¨   AxJ Markets: Lacklustre data out of South Korea this morning had a marginal impact on the strength of KRW, which held firmly below the 1,120/USD handle. IP slipped by 0.3% y-o-y (consensus: 1.1%; May: 0.2%), weighed by sluggish activity reported for semiconductors and transportation equipment. Decline in industrial inventory attributed to diverging trend between external demand and production could suggest for IP to pick up over the coming months on the back of sustained external demand; keep a neutral view on KRW over the medium term, with bouts of weakness stemming geopolitical noise likely to remain brief.

¨   GBPUSD delved lower yesterday to 1.3066 (-0.40%) yesterday despite improvements in CBI retailing sales which reinforces expectations for a stronger retail sales over the coming month. Ahead of BoE rate decision in the week ahead, we opine for the MPC to affirm the strengthening pace of UK’s economic recovery, but likely to downplay any firm commitment towards monetary tightening over the coming months as mixed inflationary outlook and obstacles stemming from UK’s Brexit remain a strong catalyst over the medium term which could keep the Bank biased towards a cautious stance. As such, we reiterate our neutral view on GBP, balanced by the soft USD backdrop and Brexit uncertainties.

This message is intended only for the use of the person(s) to whom it is addressed and may contain information that is privileged or otherwise protected from disclosure. If you are not the intended recipient you are hereby notified that any use, review, disclosure or copying of this message and the information it contains is prohibited. If you receive the message in error, please notify the sender by reply e-mail and discard all its contents.   Thank You.