The Fed are planning on 3 interest rate hikes before the end of this year, this market report discusses how this will be affected by future inflation data releases from the US and how raising interest rate hikes could affect USD. The below table shows the difference in USD you would have achieved when buying £200,000.00 during the high and low points of the past year.
|Currency Pair||% Change||Difference on £200,000|
The US Dollar has gained in value on a trade weighted basis for the past four-days now. It benefited off the back of weak data negatively affecting its peers, such as the UK unemployment data yesterday morning.
As it stands, the Fed still plans to hike rates a further three times before the end of the year, and these hikes are being driven by expectations for the US economy to grow by 2.5% before slowing to 2% next year.
Inflation in the US is also expected to rise up to the Fed's target of 2% by the end of next year, so the health of the US economy does justify the bullish approach from the Fed which is likely to result in greenback strength in my opinion. Once the US offers one of, if not the highest return on deposits in the developed world I think its attractiveness will result in cable dropping back into the mid 1.30’s.
Interestingly just yesterday the Fed’s Patrick Harker said he still thinks just two interest rate hikes are needed. I would expect to see a softening in the Dollar’s value if it’s announced that the Fed won’t hit target.
The US Dollar did strengthen late yesterday evening after the Fed Reserve’s January meeting showed that there is likely to be a need to keep raising US interest rates. Policymakers at the Fed have upgraded their forecasts for the US economy since December too.
The Feds next chance to make amendments to monetary policy isn’t until this time next month (March 20/21), so until then we may have to look for other prompts which could move US Dollar rates.
Later today both Initial and Continuing Jobless claims will be released at 1.30pm UK time, and they will give us an idea of how healthy the US jobs market is with 230k initial jobless claims expected.
Planning around events such as these can really benefit clients so make us aware if you have a transfer planned involving the greenback.
For more information on how future data releases could affect your currency requirement, call our trading floor on 01494 725 353 or email me here
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