3 August 2018
Rates & FX Market Update
BoE Lifted Bank Rate by 25bps to 0.75%
Highlights
¨ Global Markets: Trade tensions took centre stage yesterday and escalated further following Beijing’s announcement to retaliate to the new tariffs on USD200bn of Chinese products to which the US Secretary of Commerce, Wilbur Ross, responded that there will be more pain ahead for China. The US Dollar consequently rose across the board while Treasuries were supported with the 10y UST yield closing below 3.00% (-2.1bps d-o-d).
¨ AxJ Markets: Over in Asia, most currencies fell against the Greenback after the latter rallied post-FOMC, and amid an escalation in the on-going trade war. MYR fell c.0.2% against the USD, with the USDMYR pair heading towards the 4.08 level. Trade data due later today is expected to show a robust surplus, and alongside with solid economic fundamentals, should keep the pair below the 4.10 handle over the coming weeks, barring deterioration in external confidence; stay neutral MYR.
¨ In the UK, the BoE increased its interest rate benchmark to 0.75%, against our anticipations. Governor Carney signalled that further gradual hikes should be warranted to manage inflation but highlighted Brexit risks. As the decision was priced in and combined with Carney’s comments, the GBPUSD fell holding just above 1.30. In our opinion, if weakness persists in the economy, it would further complicate BoE’s tasks; we remain neutral GBP.
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