Back in December the FED adamant that the US economy was in good form, Janet Yellen made the announcement that the US could be looking at 4 hikes in 2016. As a result, GBPUSD took a dive.
Since then of course, we’ve heard every reason as to why none have been actioned, global economic risks, mixed data and Brexit amongst a few. The same rang true last year when the economy was arguably in better form than it is current, yet a rate hike wasn’t even considered.
Under the current economic outlook, Non-farm payroll figures recently have been poor, bond yields are at a record low and Donald Trump has recently been asking about Nuclear bombs and why they can’t be used, where does this leave the FED?
Interest rate hike unlikely to happen
From four hikes down to two, the odds of even 1 hike this year have dropped drastically with very little room for the FED to manoeuvre before Christmas. Brexit is still a major worry for global markets and the US elections in November have already rattled markets. The concept of Trump vs Clinton doesn’t sit well for some given the controversy surrounding both candidates.
Friday’s non-farm payroll figures could be a decision maker for the FED, given May’s abysmal release, markets will want to see that these figures were merely a blip in the road. Poor data on Friday could see the odds of a rate hike drop even further.
But when will the FED get the opportunity to hike rates this year? December could potentially be a possibility but I think this does depend on how the US elections pan out and also the economic releases at the time, but Brexit will still be a huge player with Article 50 yet to be triggered in 2017.
Buying US Dollars? The current strength in the Dollar is due to its safe haven nature. In my opinion the US Dollar is highly overvalued, as long as the Brexit uncertainty continues the Dollar will likely remain high against Pound Sterling.
Today’s Bank of England decision could see GBPUSD rates test the 31-year lows again, buying ahead of the announcement could be worth considering.