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Weekly roundup: Stronger odds of interest rate hike

currency-newsWeekly roundup: Stronger odds of interest rate hike
Stronger odds of an interest rate hike next month didn’t push the US dollar much higher last week, although it did find its feet towards the weekend. USD/GBP reached £0.7822, while USD/EUR had regained the week’s losses to end at €0.8957.

Speculation surrounding meeting minutes from the Federal Open Market Committee (FOMC) kept the US dollar on weak form for the majority of last week. Even when the minutes were finally released, USD saw little in the way of renewed appetite.

While the minutes were generally optimistic, noting that it would soon be appropriate to increase interest rates, the Fed did add its usual caveat that upcoming data would need to meet forecasts in order to show that the economy was strong enough to handle a hike. With analysts having pretty much expected this, the minutes held very little new information, so there was no reason for the US dollar to move.

Odds of a hike were at 83.1% for much of last week, but have this week edged down slightly to 81.9%.
While Thursday’s advance goods trade balance for April showed a larger-than-expected deficit, Friday’s data was much more positive. First quarter GDP was revised to 1.2%, beating forecasts of 0.9%, while durable goods orders declined -0.7% in April - under half the forecast drop.

It’s a busy week for US data and so by Friday the markets will have a much clearer picture of whether the Federal Reserve is likely to raise interest rates in June. Today’s personal consumption expenditure data is the Fed’s preferred way of measuring inflation, so a strong result here would remove one barrier to a rate hike. Then, on Friday, the hugely influential nonfarm payrolls report will show if employment continues to rise at a healthy pace.
 
Philip McHugh

Philip McHugh

Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure

Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)

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