The Bank of England (BOE) raised interest rate by 25 basis points to 0.75 percent as what was expected on Aug. 2. Exchange rate of pound fell after climb. Earlier yesterday, the US Federal Reserve announced that it wouldn’t take any action after the policy meeting but offered a more optimistic economic outlook.
Institutions viewed that as market expectation has been released, the increasing trend for the US dollar may be changed in the second half of this year.
The US Fed announced on August 1 that it will maintain federal fund rate at a range between 1.75 percent and 2 percent, meeting market expectation. Meanwhile, the Fed reiterated interest rate hike gradually.
Matt Weller, financial analyst from Gain Capital, said that there are several changes in expressions of the policy statement. The expression of economic activity growth is changed from “stable” to be “robust”, that of unemployment is changed from “downward” to “staying low”, and that of inflation is changed from “close to 2 percent” to “keeping at 2 percent”.
He added that some analysts viewed that since the Fed revised assessment on economic activities, it is likely to raise interest rates next month. However, it is difficult to get new information from the statement. Therefore, federal fund futures traders are at a loss.
According to FedWatch of CME, the possibility on Fed’s interest rate hike is expected to be over 91 percent on August 2, higher than the 73 percent last month, but it is almost the same with that of the day before.
Why the Fed is so calm is because of the moderate monetary policy as it raises interest rate quickly but shrink balance sheet slowly, which stimulated the US economic growth driver, ICBC International commented.
ICBC International predicted that the Fed will continue to carry out the previous policy in 2018. It is very likely to raise interest rates each in September and December, making four hikes totally in 2018. The US economic growth is predicted to be over 3 percent along with stable stimulation to core inflation. As a result, the situation with stock market outperforming bond market won’t be changed.
The influence of Fed’s policy decision on the market is very limited. As of closing hour of August 1, the US dollar index which measures exchange rate of US dollar against other 6 major currencies rose slightly by 0.10 percent and settled at 94.556.
In comparison, the BOE took proactive action by raising interest rates by 25 basis points on August 2.
Exchange rate of pound against US dollar dropped after rising upon the BOE’s decision. It reported 1.3095, down by 0.2317 percent on August 2.
Technically, if the exchange rate fell below 1.3084, it will continue to decline. On the other hand, if it moves up above 1.3150, it is expected to reach up to 1.3208, according to TXTM’s analyst Lukman Otunuga.
The trend of US dollar index is waiting a turn in the long term. The change in expectation on interest rate from three hikes to four hikes is a major contributor of boosting US dollar index. As the signal on Fed’s interest rate hike becomes clear and the expectation has been released, motivation of stimulating US dollar index will run out in the second half and it will see a downturn gradually. Currencies of emerging markets are expected to pick up after facing pressure for a period.
Translated by Vanessa Chen
Institutions viewed that as market expectation has been released, the increasing trend for the US dollar may be changed in the second half of this year.
The US Fed announced on August 1 that it will maintain federal fund rate at a range between 1.75 percent and 2 percent, meeting market expectation. Meanwhile, the Fed reiterated interest rate hike gradually.
Matt Weller, financial analyst from Gain Capital, said that there are several changes in expressions of the policy statement. The expression of economic activity growth is changed from “stable” to be “robust”, that of unemployment is changed from “downward” to “staying low”, and that of inflation is changed from “close to 2 percent” to “keeping at 2 percent”.
He added that some analysts viewed that since the Fed revised assessment on economic activities, it is likely to raise interest rates next month. However, it is difficult to get new information from the statement. Therefore, federal fund futures traders are at a loss.
According to FedWatch of CME, the possibility on Fed’s interest rate hike is expected to be over 91 percent on August 2, higher than the 73 percent last month, but it is almost the same with that of the day before.
Why the Fed is so calm is because of the moderate monetary policy as it raises interest rate quickly but shrink balance sheet slowly, which stimulated the US economic growth driver, ICBC International commented.
ICBC International predicted that the Fed will continue to carry out the previous policy in 2018. It is very likely to raise interest rates each in September and December, making four hikes totally in 2018. The US economic growth is predicted to be over 3 percent along with stable stimulation to core inflation. As a result, the situation with stock market outperforming bond market won’t be changed.
The influence of Fed’s policy decision on the market is very limited. As of closing hour of August 1, the US dollar index which measures exchange rate of US dollar against other 6 major currencies rose slightly by 0.10 percent and settled at 94.556.
In comparison, the BOE took proactive action by raising interest rates by 25 basis points on August 2.
Exchange rate of pound against US dollar dropped after rising upon the BOE’s decision. It reported 1.3095, down by 0.2317 percent on August 2.
Technically, if the exchange rate fell below 1.3084, it will continue to decline. On the other hand, if it moves up above 1.3150, it is expected to reach up to 1.3208, according to TXTM’s analyst Lukman Otunuga.
The trend of US dollar index is waiting a turn in the long term. The change in expectation on interest rate from three hikes to four hikes is a major contributor of boosting US dollar index. As the signal on Fed’s interest rate hike becomes clear and the expectation has been released, motivation of stimulating US dollar index will run out in the second half and it will see a downturn gradually. Currencies of emerging markets are expected to pick up after facing pressure for a period.
Translated by Vanessa Chen
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