Here’s What Happened:
- Last Wednesday the Federal Reserve (Fed) meeting announced that U.S. interest rates were to be left unchanged at 0.5%
- This was good news for the euro and not so good news for the US dollar
- The EUR/USD on Thursday increased by 0.8%
- And on a weekly basis the world’s most popular currency also moved upwards by 1.2% and ended trading at 1.12668.
So what’s kept the Fed back from another rate hike?
- The Fed stated that unemployment is getting better
- But they are waiting for inflation to meet the 2% target set by them.
- U.S. policymakers forecast that the economy will continue growing at a moderate pace.
- There were expectations by the U.S. policymakers in December that the Fed would further increase interest rates four times during 2016.
- However, now it expects the increases to take place only twice during the year.
- Fed Chairwoman Janet Yellen stated that the decision to keep interest rates unchanged enables for a more cautious approach and to make sure that unemployment levels continue to decrease through the current period of global economic volatility.
- The statement of the Federal Open Market Committee (FOMC) that was released on Wednesday was in line with Ms Yellen’s comments – basically what they are saying is that there is improvement of the U.S. economy but there is also negative impact of the weakening global economic growth.
So when might we see the next hike?
- The Fed’s latest decision of retaining the interest rates at the same level and the scaling down of the number of rate hikes during this year indicates that there are still obstacles posed by weak global economic growth.
- Despite last week’s decision, the Fed’s Chairwoman said that the current stance of the central bank is “not certain and could be amended depending on upcoming economic developments.”
- We have however seen an improvement in the price of crude oil which have also been an important determinant for hikes by the Fed.
- Crude recently recovered from ultra-lows in January of $28 a barrel to just under $40 on Friday Added to that is a better than expected Consumer Price Index (CPI) report released showing that February’s index increased by 1%
- And an improved labour market with unemployment under the 5% level is seeing some analysts forecast the next rate hike to take place during FOMC’s April meeting.
Which way will the Fed go next month and how will the dollar fare? Let us know your thoughts by sharing this video!