02 Aug 2018 ( Lagos ) : As anticipated, the Federal Reserve kept interest rates unchanged on Wednesday while maintaining the perception that gradual rate hikes will resume. However, changes in the statement reflected a more upbeat Federal Reserve, sending the U.S. Dollar higher. The committee noted that economic activity has been rising at a strong rate and household spending and business investments have grown strongly. The slight tweaks in language suggest that we’ll see another rate hike in September and probably December too.
The Bank of England will be meeting today and unlike the Fed, markets expect to finally see a 25-basis point rate hike. However, the rate hike may not necessarily translate to a higher Pound. Although the U.K.’s economy recovered slightly from the first quarter, Brexit-related uncertainty has increased significantly. This makes today’s decision a tough one. Sterling traders should focus on forward guidance which is likely to be dovish. If more than one MPC policy member dissents from raising rates, expect Sterling to fall slightly against the Dollar. However, if the BoE chooses not to raise rates it would be a big shock and we could expect a drop of 200 to 300 pips.
Source: Hussein Sayed, Chief Market Strategist at FXTM
Reporting for EasyKobo on Thursday 02 August 2018 in Lagos, Nigeria
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