FX FUNDAMENTAL ANALYSIS
USD Te Federal Reserve has recently hiked rates to 0.75%. So the question on a lot of traders’ minds is: can we expect further increases during 2017?
One thing Donald Trump has been short on during his
campaign in
specific detail. But as someone who an t i c ip a t e d the New York bu si nes sma n w in n ing No v em b er ’ s election, I’m fairly confident that his domestic spending plans will make further US interest rates more 2017.
likely in
But it’s not just my instinct which is giving me this feeling, it’s the behaviour of
where
investors they
and are
For example, Trump has talked of implementing a substantial spending programme to improve US infrastructure, which will increase the cost of borrowing and potential yield from government bonds.
However, this all depends heavily on the kind of trading arrangements
EUR
At their December meeting, the ECB kept rates unchanged. However, they announced a nine month extension of its QE programme from March 2017 until December 2017.
Te additional nine months of easing will be at a reduced size of €60 billion per month compared to
current month. order asset
purchases which total €80 billion per
In to avoid
bond scarcity, the ECB are to reduce the minimum length of purchasable bonds from one to two years, as well as buying below the deposit rate from January 2017.
USD should continue to sustain its strength well into 2017
moving their capital. Since Donald Trump’s election, global bonds have lost over £1 trillion in value during a significant investor sell-off. Tey’ve started moving their capital into equities, believing that Trump will create a domestic framework which is very pro-business.
Investors think Trump will implement inflationary policies, increasing the chances of interest rates rising.
24 FX TRADER MAGAZINE January - March 2017
he can secure with partners in North America and beyond. An insular America which starts trade wars could have an adverse impact on US employment and business spending, reducing the likelihood of a rate rise in 2017.
All things considered, I’m expecting the USD to sustain its strength well into 2017.
Although QE is to be reduced from €80 billion to €60 billion, Draghi stressed that the
ECB ‘wish to have a sustained presence in the market and tapering was not discussed at the meeting’. Furthermore, Draghi stated that ‘they could move purchases back to €80 billion’ and that ‘QE is open-ended’. With the ECB extending its QE programme and presenting an overall dovish tone at the accompanying press conference, the euro weakened across the board and has continued to remain pressured since.
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