Rising rate hike odds push Dollar

26 October, 2016

US Dollar

The Greenback extended its rally to a nine-month high against other major peers against the rising bets of a FED tightening in December. As rumors are circling the next US leader saying that they will shift the stimulus burden from FED via changes in the fiscal policy. The FED policymakers are becoming less pressured in weighing the pros and cons of the rate hike.

With Trump’s mighty tax cut plan and Clinton’s intentions to increase the government spending to ease the college loan bubble, the FED gets more opportunity to raise the borrowing costs with less attention paid to recession risks. The odds of a December hike rose to 71% according to the CME futures data, spurring demand for US currency.

This month, the USD index jumped by 3.44% on the hawkish FED tone and is expected to continue moving upwards. On Monday, the Federal Reserve Bank of Chicago president Charles Evans said that the US central bank may raise rates three times before the end of 2017 if the inflation expectations and the labor market will continue to pick up.

The FED’s next meeting is scheduled for November, and there aren’t high hopes for a rate hike in the eve of the presidential elections.

The British Pound

The British currency is under pressure ahead of the Carney speech at the House of Lords. Economic Committee as investors will be looking for stimulus hints in the light of the possible fallout from the UK losing access to the European Market. The head of Bank of England also warned that the inflation will rise due to the falling value of the Pound, and the bank should consider the inflation when considering support to the economy by cutting interest rate.

GBPUSD fell -0.15% to 1.2221 level.

European currency

The Euro remained under pressure after the European Central Bank indicated last week that it may expand stimulus in December to spur the economic growth.

According to the CFTC net large speculators positions on Euro rose to July 24 high of -109K signaling the increasing bearish pressure of the currency. The EURUSD fell 0.10% to 1.0869 continuing to gather selling traction.

The Euro ignored data showing that business confidence in Germany has jumped this month to a  two-year high, despite the uncertainty about the consequences of the referendum and the US presidential elections.

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