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The FED officials have announced that they might need to increase the interest rates ‘’fairly soon’’ if the US economy stays strong.
USD and EUR:
Yesterday, the US dollar was seen at its lowest level in seven weeks; with the prices accelerating the downward trend with the FED’s announcement and minutes after, the dollar saw the 3.57 level. However, the prices rose to 3.58 later during the day and started at 3.58 this morning.
On the other hand, the Euro started yesterday morning at 3.82 and fell to 3.7805 during the day and did not respond to FED’s announcements and continued at 3.7836 level. This morning, the EUR started at 3.7858.
When we look at the USD/EUR, it seems like it has not been effected by the FED’s disclosures. The USD/EUR rate was at 1.0558 and started the day at 1.0566.
What did FED announce?
The FED officials have announced that they might need to increase the interest rates ‘’fairly soon’’ if the US economy stays strong. Some FED officials have also states that it is appropriate to make incremental increases in the interest rates, while some FED officials think the high inflation risk is limited. In addition, some FED officials are seeing a high risk of unemployment and if the employment data for February is going to be pursuant to inflation, the FED might have no excuses to hold back.
There are certain fears of unemployment level to fall below the FED’s 4.8% target. Furthermore, a strong US dollar and the applied interest rate hike will have an upside risk factor; which is included in the financial incentive policy.
FOMC (The Federal Open Market Committee) will begin the negotiations on the balance sheet at future meetings.
When is the first interest rate hikes are expected?
The FED’s January minutes did not specify anything new. Although, it is expected for the interest rate hikes to be made ‘’gradually’’ in June and not in March. However, the officials seem to be divided on the timing of a rise amid uncertainty over Donald Trump’s policies.
That being said, when we look at the initial rate hike in December 2015, we can see that the FED had waited a full year to raise interest rates for a second time so the uncertainty still remains.
