It's been speculated that the FED would raise rates towards the end of 2016, does the current US economic climate support one?
Speculation on when the US will raise interest rates has an impact on almost every currency globally, from the ‘third world economies’ which borrow in USD so their costs would rise, to the Euro as currency speculation impacts demand and therefore price. For example as the global markets priced in the likelihood of an interest rate hike in the US this year GBPEUR rates climbed as traders moved money out of the euro and into the USD. This movement of funds out of the single currency made buying the Euro cheaper towards the end of August.
Forecasts on when this increase will come will continue to move markets making everything from a property purchase in the Alps to buying a classic car in the US more or less expensive, so it should be a focus point for everyone with exposure in any currency.
Some of the most important US economic data, including jobless figures, and confident surveys, have recently surprised with slight contractions recently. Some members of the FED officials still suggest that a hike could come as soon as next week’s meeting. Currently the market seems to have priced in about a 22% chance of a hike, down from 30% at the beginning of the week, at their meeting on the 20-21 September. If confirmed this will almost certainly make the USD more expensive and the Euro cheaper to buy with Sterling.
Personally I expect rates to climb following the appointment of the next President of the US so towards the December meeting, a year on from their last hike.
There is still a number of key economic releases due between now and the FED’s interest rate decision next week to keep an eye on. This includes Import/Export figures this afternoon, Retail sales tomorrow and Consumer data on Friday.
This week I generally expect the USD to gain in value, especially if the BOE suggest another cut on Thursday. GBPUSD rates have fallen by nearly 1.5% over the last 7 days and I expect the same moving forward. If I had to buy USD this week I would be moving sooner rather than later to avoid a larger cost.
Therefore, if you have an upcoming US Dollar buying requirement, call our knowledgeable brokers on 01494 725 353. We may be able to help you make an informed decision.
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