Will the Federal Reserve raise interest rates in December?

The US Dollar strengthened against the Pound yesterday, with Philip Hammond’s much anticipated Autumn statement this afternoon approaching, and the markets pricing in an interest rate hike in the US for December. Traders on the futures market on Tuesday evening bet heavily on an interest rate hike in December due to stronger than expected data in recent weeks and as a result we saw the US Dollar make significant gains against the Pound.

Much of the USD’s strength this year has been down to the markets anticipating further interest rate hikes this year, but so far we have been left disappointed. My concern is that with a new President only just being elected is it too soon for the Federal Reserve to act now on raising rates?

I would argue that the Fed may want to want to see what Trump’s policies are before they make any decisions and to let the dust settle and see how the economy performs at the beginning of next year. Also, Trump was quick to criticise Fed chairlady Janet Yellen during his campaign, stating that he was inclined to replace her if he came in to power, so this could also create some uncertainty going forward and a potential weakening of the US Dollar.

Trump caused a stir in the headlines yesterday too by claiming on his Twitter account that he felt Nigel Farage would be a good UK ambassador to the US and that he would quit the Trans-Pacific Partnership trade deal on his first day in office. This would scupper plans of a trade deal that would cover 40% of the world’s economy, and could create volatility for the US Dollar once Trump takes over the White house.

FOMC Minutes tonight could impact US Dollar exchange rates

Today there is a raft of data set to be released from the US economy that has the potential to impact on US Dollar exchange rates. Probably most significantly we have the FOMC minutes from their latest monetary policy meeting at 7pm. There was no interest rate movement announced at their last meeting, but it will be interesting to see if there are any hints towards the chance of a rate hike in December. This announcement is out of our office hours, so make sure to contact your broker well in advance if you are concerned as to how this could affect your currency transfer. In the afternoon before the minutes are jobless claims data, which give an overview of the number of American’s out of employment in a certain period. Jobs data is a key factor when determining interest rate policy so is certainly worth keeping an eye on.

In the event the FED do raise interest rates in December, the US Dollar could strengthen against a basket of currencies including the Pound. Clients looking to purchase US Dollars may be prudent to do so sooner rather than later. Email me here if you would like to talk through your requirements, or call our trading floor on 01494 725 353 to be put through to one of our brokers.

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