US Fed set for first rate hike of 2016

On Wednesday, the Fed could be set to raise interest rates for a second time following its first hike this time last year, as employment and inflation steadily improve throughout 2016. I personally believe that the market has already factored this in, however the main focus will be on the central banks outlook for borrowing costs in 2017, with many investors betting that the number of rate hikes next year could increase.

I personally believe that it is hard to predict exactly how many times the Fed are set to increase rates, exactly a year ago we were in the same situation when Janet Yellen – Head of the Fed stated that there would be 4 gradual rate hikes throughout 2016, however the headwinds from global events created uncertainty as to when they should raise rates again. Will Brexit and Donald Trump’s vote into power cause similar problems for the Fed in 2017?

One of the key points and arguments as to why they will tread carefully in 2017 is due to the Republicans proposed slash to taxes in order to lift growth in the US. Janet Yellen has made it clear that it is too early to assess the implications of future Tax and spending plans.

That being said, any clients that wishes to buy US Dollars may find themselves paying more after Wednesday night. The event is outside UK working hours, however there are a range of tools such as limit orders that could protect your currency requirement. As I previously said, I think that the US interest rate hike has been factored into the price of the US Dollar – it will be the subsequent monetary policy conference that could cause fireworks.

For clients that have a US Dollar buying requirement, getting in touch with your broker ahead of the decision on Wednesday may help you in making an informed decision. Call our trading floor on 01494 725 353 or email lme@currencies.co.uk if you would like to talk through your requirements.

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