23 May 2017
Rates & FX Market Update
Fed’s Kaplan Reiterated View for 2
More Rate Hikes This Year
Highlights
¨ 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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