Market Update - May 25, 2017

Lighter flows than usual this am with a number of countries closed for Ascension Day. OPEC agreed to extend production caps to March 2018. That was pretty much in line with expectations and oil is off session highs, despite yesterday's larger than expected inventory draws. USD is taking back some of yesterday's post FOMC losses. Fed members agreed that they should hold off on raising rates until they see evidence that a recent economic slowdown was transitory (RTRS). Markets are still pricing in a June hike, but longer end UST yields have come off. The earlier weakness seemed to have been triggered by some dovish observations from Fed speakers and minutes. In particular, the generally centrist Robert Kaplan of the Dallas Fed said in a speech after the US close that while the weak readings on the economy are "likely transitory", he is not certain of that so he intends to "be patient in assessing upcoming data to see whether this in fact is transitory or part of a weakening trend". The Fed's Evans was as dovish as ever, pointing to the eight-year inability of the Fed to get inflation back to a targeted 2%, and the risk that the public might begin to view the target as a ceiling rather than a symmetric target as a result. G10 currencies under pressure vs USD with commodity linked currencies leading the pack. EUR remains resilient with key support at 1.1160/70 intact. GBP would have been relatively flat as well but lost ground on disappointing Q1 GDP data.