At the last two interest rate meetings on November 2nd and September 21st, Janet Yellen alluded to a lack of change in major economic indicators as the predominant reason the central bank backed away from interest rate hikes. However, there are three main reasons I believe the FED will raise interest rates at their next meeting on 14th December. Firstly, with the unemployment rate for November released on Friday 2nd December coming in at 4.6% - the lowest rate since August 2007 – there are signs the US economy is starting to heat up once again.
Secondly, after OPEC’s consensus at Wednesday’s meeting in Vienna to cut its supply by 1.2m barrels a day saw Brent crude make gains of 14% in a two-day period to $54 per barrel -16 month highs - we may see inflationary pressure starting to be placed on the US economy in the upcoming months.
Thirdly, with Donald Trump’s aggressive infrastructure spending and protectionist policies further inflationary pressures may arise due to the effects of tariffs and curtailed immigration.
US Services PMI data, released today at 14:45pm captures business conditions in the service sector. With the sector making up 79.6% of GDP and accounting for more than 80% of US private-sector employment, a bullish reading similar to October of 54.7 may have significant impact on US Dollar exchange rates.
Further to this, on Tuesday 6th December at 15:00pm factory orders for October are released. These give a strong indication to inflation and growth in the manufacturing sector. A high reading would be seen as US Dollar positive and a low reading US Dollar negative.
Later this week, on Thursday 8th December at 13:30pm we have initial and continuing jobless claims figures released, - the number of people who have started and continue to claim state unemployment insurance - providing an insight into the strength of the labour market.
With the FEDs decision just over a week away, clients with a US Dollar buying or selling requirement may benefit from getting in touch with their broker. Call our trading floor on 01494 725 353, alternatively, if you do not have an account with us but have an interest in making a currency transfer, you can email me at firstname.lastname@example.org.
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