As markets prepare for the FED’s latest interest rate decision at 7PM GMT, the Pound has clawed back some of the losses of yesterday’s Brexit update. With Government now expected to invoke Article 50 as early as next week, GBP investors took comfort in the strong unemployment and Claimant count numbers this morning, setting the scene for a stronger jobs sector in the wake of the Brexit vote.
Unemployment dropped from 4.8 to 4.7%, whilst those filing a claim for unemployment dropped by 11,300.
GBP/USD is now trending around the 1.22 mark at the time of writing, but current levels may not be available for long.
US FED expected to raise interest rates
It’s widely anticipated that the FED will raise interest rates by 25 basis points today, analysts have confidently placed the likelihood at 90%. However, there are a number of scenarios that could prevent the FED from loosening monetary policy today.
Since the global recession the Chairlady Janet Yellen has changed interest rates twice, and although she plans to move interest rates three times this year, FOMC members may decide to wait and monitor economic indicators since the last hike in January.
This may result in a US Dollar sell off and could provide spikes for GBP/USD and AUD/USD.
In contrast, some analysts predict the FED may raise interest rates by 50 basis points, which could have significant implications for GBP/USD.
Dovish or Bullish Yellen?
The interest rate decision could be a big event for US Dollar exchange rates, but markets will be interested in the FOMC meeting due after for further hints on future policy. It’s fair to say that Yellen has little to be dovish over in regards to the recent string of economic data. Strong non-farm payrolls on Friday coupled with almost maximum employment are definite signs of a strengthening economy, and Trump’s economic plans appear to have have done little to shake US Dollar investment.
That being said, Yellen does have a tendency to err on the side of caution and given the latest rate hike only emerged two months ago, she may adopt a wait and see approach.
In any event, expect a volatile day for the US Dollar.