2016 has been unpredictable both politically and financially. However, there could be one more twist yet to come if the US Federal Reserve choose to stick with current interest rates.
What should we expect
Economic data from the US has been largely positive over recent months. Unemployment has fallen and durable goods, industrial production, housing construction and retail sales have all showed signs of growth. Naturally this has created a stronger outlook for the economy.
As a result, the Fed Futures have projected the chances of an interest rate hike from 0.25%-0.50% to 0.5% to 0.75% at an overwhelming 95% – 100%. If the Fed follow through with raising interest rates, the impact on the currency markets could be muted.
Nevertheless, a key factor in volatility will be any comments made surrounding future hikes that are likely to be scheduled as early as May next year. This future guidance will be vital to the near-term direction of the US dollar and if the Fed do decide to schedule an aggressive increase in interest rates then we could see an extension of the current trend of dollar strength.
Expect the unexpected
As it is the year of surprising outcomes, we should expect the unexpected this Wednesday. Although unlikely, the Federal Reserve may still decide to keep interest rates at current levels. Given the fallout from Brexit, the fragility of the euro, plus Trump’s election victory, the Fed may take a cautious stance. In this scenario, there would almost undoubtedly be a hit to the US dollar. In addition, investors would be compelled to seek out better yields.
Plan for the future
At OFX, much of our work includes protecting our clients from future volatility by keeping them abreast of relevant trends. We’ve got the right products such as: forward contracts, limit orders and spot trades to help develop a tailored strategy for businesses to ride out currency fluctuation.
To find out more, go to OFX.com