Morning update – 27/01/16 by Michela Jaccarini
January 27, 2016Good morning!
Today is an important day; what will the FED do? The FED hiked rates in December 2015 and predicted that there would be 4 more rate hikes throughout 2016. When the FED hikes the rates it’s their way of saying that the economy is strong and healthy. When it lowers rates or changes its forecast that shows weakness and lack of confidence in the US economy.
Since hiking rates from record lows in December, the global economic outlook has fallen sharply. Stock markets and oil prices have plummeted and China’s economic stability has been nothing short of weak! Therefore many people wonder, was it a mistake for the FED to hike the rates?
It is highly unlikely that the FED will reverse their December rate hike move as this will dampen their credibility, however the pace at which they continue to hike rates will be more gradual than previously expected. There is great uncertainty in the market, not only because of China’s situation but also because of the economic situation in other areas such as Europe. Mario Draghi last week hinted at the possibility of introducing further QE into the market in the ECB’s next meeting in March.
Janet Yellen has previously stated that the price of oil does not need to go up for the FED to hike rates but they need to stabilise. This fall in current oil prices is keeping inflation below the FED’s desired target of 2%. When oil prices fall, energy firms cut back on spending which in turn hurts US economic growth. Today we have data of crude oil inventories which will affect oil prices depending on the amount of supply in the market.
Following, the FOMC at 7pm GMT, New Zealand also have their interest rate decision at 8pm GMT. Based on the information stated in the FOMC meeting and the Kiwi news, there could be some very good trading pairs tonight!
Good luck!
