3 Reasons the Fed May Raise Interest Rates
The Federal Reserve (Fed) is scheduled to announce their interest rates on June 15, 2017 at 01.00 am. It is estimated the Fed will raise interest rates by 25 basis points from 1 percent to 1.25 percent.
Meanwhile, earlier in the month we have learned that US Non-Farm Payrolls (US NFP) data for May 2017 showed a rise of only 138,000 in May, well below the economists' forecast of 181,000. Nevertheless, according to U.S. reports. Bureau of Labor Statistics unemployment rate slightly improved to 4.3%.
Nevertheless, there is the opinion that the disappointing US NFP data will not be a deterrent for the Fed to raise interest rates in June. Indeed, the negative data may cause doubt, but at least three reasons below can be considered why the Fed is likely to keep raising interest rates at its next meeting on Thursday.
1.Fed is not a retail trader, they are the central bank
Yes, the Fed is the central bank which is the policy maker. They are not small traders like us.
After the release of US NFP data earlier this month, the USD weakened. The market seems somewhat dubious that the Fed will raise interest rates this month. But it seems rather naïve to think that the Fed will react to only one economic data. Fed central banks will surely see the trend of an economic data.
Considered, consistent US NFP numbers are in the range of 100,000 to 300,000 in recent years, while the unemployment rate is in the relatively low range.
fed interest rate, forex trading, forex strategy
2. Commodity prices potentially continue to contribute to US inflation
Commodity markets such as gold and precious metals are currently moving very volatile. There are many factors that affect the price of commodities, one of which is inflation. After the end of China's loose policy, investors seem to be starting to worry about rising inflation. But many investors also seem to forget that one of the key factors that can increase the rate of inflation is the weakening dollar. We know that the majority of commodity prices are in dollars. In other words, a weaker dollar will increase commodity prices.
Donald Trump's economic policy plans such as tax cuts, regulatory simplification and increased infrastructure development have boosted the US dollar post-election. This is because there are thoughts that these things will be able to provide power for the economy of the United States (US). But the economic agenda of Trump seems to have stalled. Trump is yet to see signs of realizing the stimulus in the near term, so we may not yet see a sharp rebound in the USD in the near term.
3. ADP data Non-farm payrolls will not be ignored
The US private sector added significant numbers of workers last month. In May, the private sector recruited 253,000 workers, far exceeding the economists' forecast of 180,000.
This private sector activity indicates that the US labor market is actually still in good shape and in a positive trend. The slowdown that occurs in US NFP numbers could be because the US government does not hire too many employees in the midst of the rising government of Trump.
How is the Opportunity?
For short-term forex trading opportunities, currently our choice falls on GBPUSD because based on the data we have this pair's volatility is highest among the major currency pairs others in at least the past year.
For medium term trading, our choice also falls on GBPUSD so far fundamental and technical factors can still be said in line. We know that about a week ago Britain has just conducted an election and the result is a negative sentiment for GBPUSD. Until now, the medium term outlook for GBPUSD is still bearish.
If these negative sentiments are reinforced by a rise in the Fed rate - which means a strengthening USD - then a bearish outlook for GBPUSD is expected to grow stronger. This combination of fundamental and technical factors is likely to bring GBPUSD lower for the medium term.
fed interest rate, forex trading, forex strategy
Whatever your forex strategy will apply, make sure you have a trading plan and use appropriate capital management and risk management.
Meanwhile, earlier in the month we have learned that US Non-Farm Payrolls (US NFP) data for May 2017 showed a rise of only 138,000 in May, well below the economists' forecast of 181,000. Nevertheless, according to U.S. reports. Bureau of Labor Statistics unemployment rate slightly improved to 4.3%.
Nevertheless, there is the opinion that the disappointing US NFP data will not be a deterrent for the Fed to raise interest rates in June. Indeed, the negative data may cause doubt, but at least three reasons below can be considered why the Fed is likely to keep raising interest rates at its next meeting on Thursday.
1.Fed is not a retail trader, they are the central bank
Yes, the Fed is the central bank which is the policy maker. They are not small traders like us.
After the release of US NFP data earlier this month, the USD weakened. The market seems somewhat dubious that the Fed will raise interest rates this month. But it seems rather naïve to think that the Fed will react to only one economic data. Fed central banks will surely see the trend of an economic data.
Considered, consistent US NFP numbers are in the range of 100,000 to 300,000 in recent years, while the unemployment rate is in the relatively low range.
fed interest rate, forex trading, forex strategy
2. Commodity prices potentially continue to contribute to US inflation
Commodity markets such as gold and precious metals are currently moving very volatile. There are many factors that affect the price of commodities, one of which is inflation. After the end of China's loose policy, investors seem to be starting to worry about rising inflation. But many investors also seem to forget that one of the key factors that can increase the rate of inflation is the weakening dollar. We know that the majority of commodity prices are in dollars. In other words, a weaker dollar will increase commodity prices.
Donald Trump's economic policy plans such as tax cuts, regulatory simplification and increased infrastructure development have boosted the US dollar post-election. This is because there are thoughts that these things will be able to provide power for the economy of the United States (US). But the economic agenda of Trump seems to have stalled. Trump is yet to see signs of realizing the stimulus in the near term, so we may not yet see a sharp rebound in the USD in the near term.
3. ADP data Non-farm payrolls will not be ignored
The US private sector added significant numbers of workers last month. In May, the private sector recruited 253,000 workers, far exceeding the economists' forecast of 180,000.
This private sector activity indicates that the US labor market is actually still in good shape and in a positive trend. The slowdown that occurs in US NFP numbers could be because the US government does not hire too many employees in the midst of the rising government of Trump.
How is the Opportunity?
For short-term forex trading opportunities, currently our choice falls on GBPUSD because based on the data we have this pair's volatility is highest among the major currency pairs others in at least the past year.
For medium term trading, our choice also falls on GBPUSD so far fundamental and technical factors can still be said in line. We know that about a week ago Britain has just conducted an election and the result is a negative sentiment for GBPUSD. Until now, the medium term outlook for GBPUSD is still bearish.
If these negative sentiments are reinforced by a rise in the Fed rate - which means a strengthening USD - then a bearish outlook for GBPUSD is expected to grow stronger. This combination of fundamental and technical factors is likely to bring GBPUSD lower for the medium term.
fed interest rate, forex trading, forex strategy
Whatever your forex strategy will apply, make sure you have a trading plan and use appropriate capital management and risk management.
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