16 March 2017
Rates & FX Market Update
Yellen Delivered 25bps FFR Hike with
a Less Hawkish Stance
Highlights
¨ 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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