Is a US interest rate hike inevitable now?

Financial markets have been closely tracking the likelihood that the US Federal Reserve will raise their base interest rate. This is perhaps the single most important issue on the currency markets at present and every piece of US data is receiving extra scrutiny. The Fed have closely linked the decision to hike interest rates to the state of the labour market. Yesterday’s jobs news from the US indicated much greater improvements than expected in the US labour market and sets markets up very keenly for Friday’s more important data.

Friday’s Non-Farm Payroll and Unemployment rate data are seen as the centrepieces of that labour market profile. Usually the data released yesterday closely tracks the more important Non-Farm data so all roads are pointing to a rate hike. Fed Chairlady Janet Yellen also spoke yesterday reiterating this important link and it seems a rate hike is highly likely later this month.

Is USD strength a sure bet on the US rate rise

Whilst the Dollar is rising on the expectation of a rate hike history tells us that every time the Federal Reserve have hiked the USD weakens as investors become confident about the global economy and investing overseas. Such a strategy does go against the consensus but if you need to buy the Dollar then hanging on could be an option. There does also remain a chance the Fed will not hike which could paradoxically also lead to the USD weakening. We have until the 16th December for the actual decision and nothing should be taken for granted on US Dollar exchange rates at this critical time.

For more on US Dollar exchange rates and timing a USD transfer please email me at jmw@currencies.co.uk.

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