Hello everybody.
Being outside America, this comes as a news to me. According to Bloomberg the stabilization of the jobs market in the States will boost inflaction, asking the fed reserve to take action. FR should then renegotiate the interest rates soon, making them higher for sure, in that way creating probably a bullish market for the USD. When will that happen? Rumors say probably in september. Do you have further informations?
My guess is the rate rise will come in November or December. Markets are still a little bit shaky right now. When they do rise, inflation will continue to rise and the rates will continues to increase to control it. Money will flow out of stocks and into safer assets like bonds.
FX is a lot more complicated and there are a lot more factors to consider than just interest rates. Here is an example-
Last time Fed rates rose was from mid-June 2014 to August 2006.
Here is the EUR/USD over that date range:
Based on the latest FOMC minutes, it looks like policymakers are still holding out for stronger improvements in inflation and employment before deciding to increase interest rates. So far, the latest jobs report turned out to be a huge disappointment while inflation reports have been showing feeble gains so I’m thinking that a Dec rate hike might still be a very optimistic forecast. Waiting until early next year seems more likely, but that’s just me.
Wait for meaningful CPI increases. Probably 2020 or later.
-Adrian
Direct answer to the topic: yes, but only for a short while. The pressure for a bit of downside (or a lot) is mounting slowly but surely. No one can predict exactly when it’s gonna hit, but some say its overdue as the cycle that started after 2008 is more or less finished.
Markets do not believe in rate hike this year, try to think what will produce their abrupt decision of rate liftoff? Turmoil I guess…
So this should be taken into account too.