The decision for the FED to keep interest rates on hold came as no surprise to the markets, although a hike in September could be on the table.
US jobless claims yesterday arrived worse than expected with 266,000 Americans filing for unemployment benefits. The number was 14,000 more than last week but also worse than the expected 260,000. This is negative for the dollar although it was overshadowed as far as GBP USD was concerned following the weaker UK surveys and Brexit jitters which drove the pound lower.
Manufacturing activity as per the Kansas Fed manufacturing survey also fared badly putting a negative spin on things in the US.
The US Fed held interest rate once again on Wednesday and highlighted that “near-term risks to the economic outlook have diminished”. However inflation has remained below the bank’s target of 2% and is currently sitting at 1.6% where it has been since 2012. The tone was upbeat but not enough to convince the markets that there would be a rate hike in September. This was reflected in the price of gold surging.
There are three more Fed meetings this year although there is unlikely to be any action at the November meeting which is just one week before the US presidential election. The Federal Open Market Committee members have recognised that this election carries uncertainty for the US economy.
So, assuming we have no rate increase in September and the Fed are unwilling to hike in November with the US election, it would appear that the earliest hike will be seen in December. This would be exactly one year since the Fed reversed its cycle and began the process of raising interest rates before stalling on global economic concerns. This time frame is now likely to keep the pressure on the dollar over the next couple of months and the dollar may some weakness at the end of the summer ahead of the election. Clients looking to sell dollars may wish to take advantage of the excellent levels which are close to 31 year highs against the pound.
For more information on how future data releases could affect your US Dollar buying or selling requirements, call our trading floor on 01494 725 353.
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