Is the Next US Interest Rate Rise on the Horizon? – 18th May 2016

 

Next US Interest Rate Rise on the Horizon

The Presidents of the San Francisco and Atlanta Federal Reserve, John Williams and Dennis Lockhart respectively shared a podium yesterday and whilst neither is currently a voting member of the Federal Open Market Committee, their opinions are likely to be broadly in line with the mood of the committee. Mr Lockhart said there could be “two, possibly three” interest rate increases this year and Mr Williams agreed with him. Both concurred that next month’s FOMC meeting is “live”, which is Fed speak for saying a rate increase is coming.

Whether or not the next interest rate increase will come that soon, the Federal Reserve is clearly trying to manage upwards the rate expectations of sceptical investors and it had a degree of success yesterday. American share prices turned south and most equity indices in the Far East followed suit this morning. The US Dollar became the top-performing major currency, strengthening by half a cent against Sterling and by a third of a cent against the Euro.

Sterling was, on average, just about unchanged on the day; it was a touch lower against the US Dollar but a touch higher against the Swiss Franc and the Canadian Dollar and steady against the Euro and the NZ Dollar. The weakest currency yesterday was the Australian Dollar, falling by a cent and a quarter. Data wise yesterday, the consumer price index data from the UK and the US were not as compelling as they at first appeared and only had modest impact on exchange rates.

There are three items on today’s data calendar: the UK employment data, the Euroland inflation numbers and the minutes of April’s FOMC meeting. Of these, the least important should be EU inflation figure while the other two both have potential to move prices.

The Remain and Leave factions will each try to find something helpful to their cause among the UK jobs numbers. That debate will be more important than the data themselves. For what it’s worth, unemployment is expected to be steady at 5.1%.