US Dollar to move on monetary policy from the Fed

The direction for the US Dollar this year will be largely based on the path of US interest rate hikes. Having just seen an interest rate hike in December the projection from the US Federal Reserve is that there will be another three hikes throughout 2017. I am already feeling a sense of déjà vu considering this time last year we had just seen that very first interest rate increase from the Fed in December 2015 whilst the expectation from the Fed then was that there would be four hikes in 2016.

Of course only one materialised in the end so the cycle of rate changes in the US is a difficult one to predict. However this time round Janet Yellen’s comments from the December meeting were very hawkish. Perhaps three hikes in the US is more realistic in these times and the feeling is that President-elect Donald Trump is very much open to higher interest rates. Fed president Jeffrey Lacker has even stated that three hikes may not be enough as inflation picks up. This stronger overall stance is likely to lead to continued US Dollar strength going forward.

There have also been question marks over whether Fed chair Janet Yellen will finish her term in February 2018. Janet Yellen has been extremely cautious with monetary policy to date so both her relationship between the new President and whether she completes her term will be very interesting to watch and could create major volatility for USD. More recently she has stated publicly that she will finish her term although this will depend on what the new President wishes to do.

President-elect Donald Trump will be inaugurated Friday 20th January although much of his team as well as some policies have already been formulated since his victory in November. His plans will have a huge part to play in the US Dollars fortunes so expect an extremely volatile year ahead for US Dollar exchange rates.

The minutes from the last Fed meeting are released tomorrow evening where more clues as to the path of interest rate increases may be offered. US Non-farm pay rolls are released this Friday which makes for a big economic release to start the New Year.

It is widely anticipated that further US Dollar strength could emerge if the FED continue to raise interest rates in 2017, and those with a US Dollar buying requirement may benefit from moving sooner rather than later. In any event, it may be useful to discuss your requirements with your assigned broker, who may be able to help you make an informed decision. Call us on 01494 725 353 or email me at jll@currencies.co.uk if you have any questions regarding US Dollar exchange rates.

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