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Time for an interest rate hike – 14th June 2017

Time for an interest rate hike – 14th June 2017

It is widely expected that the US Federal Reserve will announce a 0.25% increase in US interest rates tonight with the increase already factored into the price of the US Dollar. If the decision is “no-change” then the US Dollar would suffer.

Over the last week the US Dollar has been an average performer and that is how it is looking ahead of the Fed announcement, which comes at seven o’clock this evening. Economic data from the States showed that producer prices were static in May and 2.4% higher on the year. Small business confidence was static too, according to the National Federation of Independent Business which is better than forecast.

The appearance of Jeff Sessions, the attorney general, at the Senate Intelligence Committee had no impact on the US Dollar. Mr Sessions was careful to say nothing provocative and relied on his faulty memory to avoid many of the questions, saying “I don’t recall” or “I have no recollection”.

In the UK, consumer and retail price index data put UK inflation higher than the Bank of England’s 2% target and they were ahead of analysts’ projections. CPI was up by 2.9% on the year and RPI rose by 3.7%. The data helped Sterling towards its first winning day since election day although Sterling was already on its way up so the inflation figures added to the momentum. However, investors are under no illusion that the Bank of England will take any policy action, given the uncertainty that lies ahead for the UK economy.

As shown by the price action on Friday and Monday, Sterling is deep inside don’t-know territory. On Monday and Tuesday there was no shortage of economic pundits telling the financial media that Sterling has been oversold; driven below levels that can be justified by economic fundamentals. That is not to suppose that it must therefore rebound in the immediate future: Trends like this have a tendency to overshoot.

There are EC figures today for industrial production and employment change: both should be positive but unremarkable. US data this afternoon cover inflation and retail sales. The importance of the numbers is diminished by the fact that they will be followed closely by the Fed rate decision, which will presumably have already taken them into consideration. Tonight New Zealand reports on first quarter economic growth.