US Dollar strengthens on hawkish Fed comments

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28 November 2018


The US Dollar was broadly stronger on Tuesday, rallying for a third straight session against the Euro, after Federal Reserve vice chair Richard Clarida talked up the possibility of additional interest rate hikes in the US.

larida joined the chorus of FOMC members who have recently hinted that they would vote for another rate hike in December. He stated that it was difficult to determine the neutral level of rates, although said he supported the process of gradual policy normalisation in the US.

The Federal Reserve are heavily expected to raise rates for the fourth time this year at the next FOMC meeting on 19th December, having continued to talk up a tightening labour market and high inflation in recent weeks. With this now largely priced into the market, investors will be paying close attention to the Fed’s updated dot plot for clues as to the pace of additional hikes in 2019.

Attention in the US now turns to politics, with President Trump set to meet with Chinese President Xi on Thursday to talk trade. As mentioned yesterday, we think that progress will be hard to come by given recent comments from Trump that suggest he intends to go full steam ahead with recently proposed tariffs on Chinese goods.

Sterling volatile ahead of December Parliament vote

Ongoing concerns over whether Theresa May will be able to force her Brexit deal through parliament continued to weigh on the Pound yesterday, which fell by over half a percent against the US Dollar.

With MPs set to vote on the draft agreement on 11th December, May now has less than two weeks to win over critics within her Tory Party, while hoping that enough members of the Labour Party reverse course and follow suit. It has been announced that May and Labour leader Jeremy Corbyn will take part in a live TV debate on the 9th December, just two days prior to the vote. Volatility is almost certain to remain elevated in the lead up, particularly should more and more MPs give an indication as to how they will cast their vote come the 11th.

Activity continues to be relatively light on the ground in the Eurozone, and the single currency is being driven largely by Brexit. Amid a lack of major economic news in Europe, we turn our attention to this afternoon’s US GDP numbers, expected to confirm that the world’s largest economy by 3.5% annualised in the third quarter.