WEEKLY REVIEW: A U-turn regarding speculation on the Fed’s monetary policy?
20.05.2016, 16:10

WEEKLY REVIEW: A U-turn regarding speculation on the Fed’s monetary policy?

Practically nobody believed last week that the Fed would continue to hike its interest rates in June. But comments by some Fed officials changed the view of market participants. More market participants think that the Fed may raise its interest rate in June.

New York Fed President William Dudley said on Thursday that an interest rate hike in June or July would be appropriate if the U.S. economy continues to improve after the weak first quarter. Richmond Fed President Jeffrey Lacker said in an interview with Bloomberg Radio on Thursday that markets misunderstood the Fed in March and April, adding that an interest rate hike in June would be appropriate. Atlanta Fed President Dennis Lockhart said on Tuesday that the Fed could raise its interest rate in June, while Dallas Fed President Robert Kaplan said on Tuesday that the U.S. economy was strong enough for further interest rate hikes in the near future.

The Fed's April monetary policy meeting minutes were also more "hawkish" than expected. The minutes showed that most Fed officials would support an interest rate hike in June if the U.S. economy continued to improve.

It looks like the Fed wants to prepare markets for an interest rate hike at its next monetary policy meeting in June. But I think it is unlikely that the Fed would raise its interest rate ahead of the referendum on Britain's membership in the European Union (EU) on June 23 as Britain's exit from the EU would have a negative impact on the U.S. economy.

If the U.S. economy continues to recover from the weak first quarter, it will be more likely that the Fed may raise its interest rate in July than in June. If Britons vote for the exit from the EU, it is unlikely that the Fed would hike its interest rate in July.

Oil prices rose this week, mainly supported by a further decline in oil output in the U.S. and by supply disruptions in Nigeria and Venezuela. It is likely that we will see some correction in the coming days and weeks as the global oil oversupply still remained.

It is likely that the currency pair EURUSD will rise toward the high of May 17 at $1.1348, if there are negative news from the U.S. and there are no negative economic data from the Eurozone.

If the U.S. economic data is better than expected and in case of the negative economic data from the Eurozone, the currency pair EURUSD may test the psychological level at $1.1100.

  • Name: Konstantin Meinhardt
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