French Electoral Developments Remain in Global Spotlight

7 March 2017

Rates & FX Market Update

French Electoral Developments Remain in Global Spotlight

Highlights

¨   Global Markets: 10y UST yields and the Dollar continued to be lifted overnight ahead of the February NFP print due later this week, despite the current US political turmoil and the signing of the revised immigration executive order. FFR futures priced in an almost-certain rate hike in the upcoming March FOMC meeting, with investors likely to take cues from the statement to assess the FFR trajectory over the year; stay neutral USTs. EUR was under pressure overnight on renewed uncertainties surrounding the upcoming French presidential election, as embattled candidate Fillon refused to step down amid intense speculations that Alain Juppe could have salvaged the Republican ticket; the latter has firmly ruled out any potential deals to replace Fillon. While Le Pen continues to lag in the second runoff against Macron, the recent unpredictability surrounding political events are likely to keep investors on a cautious stance; stay mildly bearish EUR.

¨   AxJ Markets: Asian currencies (including the JPY) were broadly stable overnight despite fresh geopolitical concerns surrounding the North Korean missile launches into Japanese waters; JPY and KRW were little changed overnight, with investors largely indifferent over any fresh North Korean provocations in recent times. The focus remains on the US NFP print and the subsequent FOMC meeting, where any hints towards a steeper FFR trajectory may exert undue pressure on Asian currencies.

¨   USDCNY and USDCNH were little changed overnight, as high-level meetings among senior party delegates kicked off over the weekend. China unveiled the 2017 growth target at 6.5%, while reiterating its commitment towards supply-side reforms and the nation’s high leverage. China also made changes to its FX policy wordings, stating that the exchange rate will be further liberalised and vowing to preserve stability in the global monetary system, hinting the government’s continued commitment to keep the CNY steady; stay neutral CNY.

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