March Fed Minutes suggests a rate hike in April is unlikely
Late last year Federal Reserve Chairlady Janet Yellen signalled to the American people that 4 Interest rate hikes were coming in 2016, providing economists and investors alike with a sense of confidence that the US economy was improving. Months later economists feel short changed as not only were the Fed unable to fulfil their promise of 4 Interest rate hikes, they are now potentially halting any prospect of a hike in the short term.
What’s behind the Feds decision to reduce the number of planned rate hikes in 2016?
Global economic uncertainty is the main driving force behind the Fed’s decision to not introduce a hike as of yet, and as we wait for signs of US economic growth coupled with stability within the Global market, the Fed remain cautious over introducing a premature hike.
Although a rate hike in April seems improbable, some investors are still holding on to the possibility of a turn-around. The Greenback lost ground shortly after the meeting and has struggled to build momentum against some major currencies, however the GBP/USD nearly dropped through it’s current support level of 1.40 this morning. As it stands USD/EUR rates are struggling to break the 0.87 mark with similar trends against the Swiss Franc, stalling at the 0.95 mark.
Volatile trading conditions expected in the weeks and months ahead
Despite negative trends for most currencies, USD continues to gain against the Pound Sterling in recent weeks, primarily caused by EU referendum concerns and poor economic data. There are however a number of important events coming up that could turn recent trends on their heads
There will be data releases this week which should install confidence in investors and Tuesday will see retail sale figures coming in, which are set to be higher than previously anticipated. Oil prices are still very volatile however with fresh hopes over a proposed freeze in oil production the price has started to rise again. This of course has positive connotations for CAD which as a commodity currency, fluctuates when the price of oil moves.
On Thursday the European Consumer Price Index is set to be released which is a major event for the Euro. A positive outcome of the CPI data will install confidence that the Eurozone is showing signs of stability. The CPI is a key indicator for growth essentially indicating the inflation level for the month.
The US election in November will certainly cause major disruption to the currency, essentially more so than usual with the controversial Donald Trump in the running. In the event Donald Trump wins the presidential election one could expect a significant decline in USD value as there is uncertainty as to what effect he may have on Markets.
However Democrats Hilary Clinton and Bernie Sanders are both setting their stalls out to take on Wall Street to attempt to bring more control. The uncertainty caused by General Elections forces investors to protect their money and that commonly involves moving investments away from danger, this causes a currency to weaken. There is an argument that the Fed will halt an Interest rate hike until after the US election and it will be interesting to see post Thursday whether further promises of a hike are announced.
