Last night the Federal Reserve Bank of America (FED) stated that they would not be raising interest rates in January due to the global economic slowdown. This announcement comes a month after the FED became the first Central Bank of a major economy to raise its interest rates but with news that China’s economy is slowing and this having a knock on effect to the rest of the world the FED now appear to be very cautious about making further moves.
Many analysts had questioned, once the FED had raised interest rates once, how soon the next rate rise would be and how much the Central Bank would hike interest rates by with some suggesting it could be as much as 3 interest rate hikes ending with interest rates up at or over 1% by the end of the year. However, with the recent downturn in the global economy the chances of further rate hikes seem to have been put back and in fact there is now the question of whether the FED will raise rates at all this year. As a result, the US Dollar (USD), has slowed its recent strength against most the major currencies although it is still very strong against both the Euro (EUR) and the Pound (GBP).
While the global economic situation will play a large part in both the FED’s and other Central Banks decision as to when they will next raise interest rates, economic conditions within their economies will be vital. The FED last night stated that they expect the job market in the US to remain strong which is vital if the Dollar is to remain strong, however the economy did slow last month but with oil prices falling so significantly and the US being a net importer of oil (they use more oil than they produce) it means a low oil price should help their economy grow.
USD Economic Data
Today we have the latest jobless figures for the States as well as housing market figures and Durable Goods orders. All three of these data sets are important and will paint a clear picture as to how the US economy is performing. These data releases are due to be announced this afternoon and there are some concerns the figures could disappoint with Durable Goods order, probably the most note worthy announcement, expecting to drop to -0.6%, a sign that the number of orders for goods that last for more than 3 years is in decline. If this is the case we could see some USD weakness following the announcement.