When Yellen announced, quite confidently, that the US would be looking forward to 4 Interest rate hikes before the end of 2016. We watched the impact of her hawkish comments on the exchange market and to no surprise, the greenback benefited.
Now 5 months later the US Dollar has been on a landslide and we can’t help but wonder what the situation would have been like if Yellen didn’t over-promise on rates, after all, 4 Interest rate hikes in a year is uncommon for any major economy.
Greenback losing ground against the Pound and Euro
EU GDP figures came in better than expected at 0.6% on Friday despite mixed Consumer price data, we are now seeing USDEUR exchange rates in the 0.86 territory, the lowest seen since August 2015.
Yesterday saw the release of key manufacturing and construction data for the US which came in worse than expected. And with the looming EU referendum now only weeks away, it’s quite surprising to see the Pound gaining against the Dollar, all of which comes as a reminder that Yellen will not hike Interest rates under these current economic and political circumstances.
The US election
With this in mind, we look ahead to the November US election which will add further uncertainty, and with Donald Trump thrown into the works it’s becoming increasingly difficult to determine when, if at all, Yellen will find the perfect opportunity to adjust Interest rates.
If at all, an opportunity would be most likely between June and September but with current US economic data showing pessimism coupled with global economic slowdown it’s becoming more likely that we won’t see any changes until 2017.
For those looking to purchase USD with Sterling may wish to do so now, the Pound sits at a 5 Month high against the Dollar and although it would appear tempting to wait until the next Interest rate decision, the EU referendum will be the big player for cable.