The following US Dollar exchange rate update discusses the news that last night the Federal Reserve held US interest rates at 0.5%.
The Federal Reserve for the 6th consecutive time held the interest rate at 0.5%. The decision has almost been a non-event for the currency markets with the USD seeing a slight drop against most currencies but no major movements. This has once again raised the question of cold feet as domestic conditions appeared to be balanced and the global situation more controlled. However whilst there was a rate hold there was a hawkish statement from the Federal Open Market Committee suggesting there would still be a rate hike in 2016.
Chairlady Janet Yellen in her speech after the announcement emphasised the point that the committee do not “group think” and that there is a debate on going with regards to when they should change the rates. For the first time in over 2 years three members of the 12 FOMC voted against the decision, economists after the vote suggested this is the Fed coming to life.
Yellen was asked in multiple different ways in the Q&A that followed her speech about the comments presidential candidate Donald Trump has made with regards to Feds influences. Trump has previously suggested that politics had compromised the supposed impartial Fed, however Yellen made it that was certainly not the case.
Interestingly Janet Yellen was very wary to comment on what effect she believes the general election could have on their future decisions. It seems hard to believe that with two very different candidates the Fed would not wait till after the election to change anything, especially when the next meeting is only a few days before the vote takes place. This essentially leaves only the December vote as a realistic time to hike the interest rate.
The USD has been very strong against Sterling since the Brexit vote however as we move towards the US election there could be increased volatility. In my opinion cable could start to move back towards the high 1.30’s in the coming weeks, especially if Donald Trump takes an election lead. Janet Yellen was appointed by Barack Obama and considering the comments made by Trump, I don’t think she would have much of a working relationship with Trump.
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