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Monthly Wrap: Will the Fed hike rates in December?

currency-newsMonthly Wrap: Will the Fed hike rates in December?
Key takeaways:
  • Low chance of December rate hike pushes USD lower
  • Markets worry Trump won’t enact economic stimulus
  • USD Monthly lows: £0.75, €0.84, AU$1.24, NZ$1.32, C$1.24
  • USD Monthly highs: £0.78, €0.88, AU$1.32, NZ$1.38, C$1.30
The minutes of the June Federal Open Market Committee (FOMC) meeting, released July 5th, sounded largely positive, but markets weren’t convinced.

Disappointment that no concrete details were provided on the plan to begin trimming the $4.5 trillion balance sheet of government assets held by the Fed kept the US dollar on underwhelming form.

A strong non-farm payrolls report, showing the creation of 222,000 jobs in June, boosted the odds of an interest rate hike taking place towards the end of the year, pushing USD higher.

However, Fed Chair Janet Yellen appeared before Congress on the 12th and 13th, and her comments on monetary policy to lawmakers sounded more cautious than expected.

Below-forecast inflation and a decline in retail sales, combined with an FOMC preoccupied by weak consumer price growth at the July meeting, kept bets of a rate hike cool, leaving the US dollar to gradually slide lower versus its peers.

Also keeping the outlook gloomy were continued fears that President Donald Trump wouldn’t implement the vast stimulus and tax policies that have been keeping demand for USD high since his election.

Those odds of the Fed hiking rates again in December - currently at around 50% - will remain the focus for the coming month.

CPI data on the 11th of August will give markets a good idea of how inflation is progressing, even though the Fed prefers to use personal expenditure data to measure consumer price pressures. Another month showing sluggish price growth would further hammer those odds of an adjustment.

Mid-August sees the release of the minutes from the June FOMC policy meeting. Markets will be hoping to see some confidence from policymakers regarding employment, economic growth and, of course, inflation.
Currencies Direct

Currencies Direct

Currencies Direct is one of Europe's leading non-bank providers of currency exchange and international payment services. Since we were formed in 1996, we've maintained our focus on providing innovative foreign exchange and international currency transfer services to corporations of all sizes, online sellers and private individuals. We have also expanded our services to provide dynamic and pioneering "business to business" solutions to help companies, tier 2/3 banks and other non-bank financial institutions to process their international payments. Our headquarters are in the City of London (United Kingdom) and we have operations in continental Europe, Africa, Asia, and the United States. Currencies Direct is jointly owned by private equity firms Palamon Capital Partners and Corsair Capital.

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