Consumer Price Index data will be released for December at lunch time today and inflation is expected to show a small decline. In order for the US to raise rates this year the economic data will need to be positive, showing a continuous improvement, currently something that is left to be desired. We are also awaiting the release of Retail Sales data which is expected to show a slight decline, especially after record Black Friday and Cyber Monday sales in November.

Interest Rate Rise Concerns

Following three rate hikes in 2017, at the end of last year there was optimism that the US would continue to raise rates in 2018, however, in the last few days there has been concerns that this might not happen. Inflation levels have remained around the 2% level and wage growth hasn’t accelerated at a fast enough rate. Should this trend continue we could see chances to the previously planned 3 rate hikes turning in to two, then maybe just one. The US stock markets have been booming of late with record highs being broken week on week, however it unlikely that trend will continue forever.

The impact of tax reforms on the US Dollar

The tax reforms that will be introduced this year have been a key booster, with businesses expected to report increased profits as they pay less corporation tax. However, if that isn’t the case when trouble strikes the US Dollar is often the main benefactor. The US Dollar is considered a safe haven and whenever there is uncertainty investors will flock their money into the Greenback to protect from losses.

Next year we could start to see this trend happening as the markets are notorious for not following the expected pattern. At the moment it is too easy for investors to keep making returns from the stock market. In the short term I expect to see the US Dollar continue with current level, but a sharp increase is only one panic away.