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Fed Set to Raise Rates

Last Week

The latest FOMC Statement pointed to impending interest rate hikes while remaining data dependent in the decision-making process as markets prepare for the liftoff in the coming months. Volatility looks likely to rise as evidenced by the chaos across currencies, indices, and commodities last week.

The Week Ahead

The dominant force in market momentum last week was the Federal Open Market Committee Statement. The Federal Reserve’s voting committee opted to leave interest rates on hold and added no new monetary stimulus measures after announcing intentions to raise interest rates twice before the end of 2015 in the first steps towards monetary policy normalization. This raises the specter of an interest rate increase in September for the first time since 2006. Core inflation slipped slightly in the latest reading while the regular consumer price index managed to rise back to unchanged after printing in deflationary territory for three of the last four readings. Inflation in the United Kingdom and Euro Area is trending firmly in positive territory according to the latest releases with annualized UK CPI climbing back above the deflationary threshold to 0.10% and the core figure also improving. Euro Area number stayed constant in-line with expectations. Greece remained unwilling to compromise with creditors on VAT and pension reform leading to a stalemate and emergency meeting with the ECB regarding emergency lending assistance as banks witness accelerated capital outflows.

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eurusdweeklyreview06222015

The upcoming trading sessions are not expected to focus on fundamental data points as much as the continuing indecision plaguing Greece with creditors and the besieged nation still at odds. Aside from the geopolitical developments, from a macroeconomic viewpoint, US data will be at the forefront in the coming days. The United States is set to release its final first quarter GDP numbers which is estimated to be revised higher from -0.70% to -0.20%. Although not the doubly-seasonally adjusted figure, this could give credence to the Federal Reserve’s ambitious rate liftoff plans. Aside from growth numbers, durable goods figures and housing data including existing home sales and new home sales are set to be released with the former expected to climb while the latter is estimated to dip slightly. Personal income and spending data points round out the week. Aside from US centric numbers, China is set to see the release of the HSBC Manufacturing PMI which is forecast to remain below the 50 expansionary-contractionary threshold. German manufacturing is expected to grow modestly and stay in positive territory.

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eurchfweeklyreview06222015