On Friday Federal Reserve Chair Janet Yellen said that it could be appropriate to raise short term interest rates in the near future if incoming data in the coming weeks fulfills the expectations of the U.S. central bank.
The dollar rapidly appreciated following Yellen’s hawkish statement. If the economy and the labor market continue to show improvement the fed finds it appropriate to approve an imminent rate hike.
The FOMC has left its benchmark Federal Funds Rate at a targeted range between 0.25 and 0.50% in each of their three meetings in 2016.
At the same, Yellen noted that the unemployment rate remain soft and blamed ineffective fiscal policy initiatives for leading to slower productivity growth, saying; “That’s a serious and negative development.”
Higher rates are bullish for the solar as it’ll become more attractive to yield-seeking investors.
The strong appreciation of the dollar caused the EUR/USD to fall sharply, settling at 1.1115 – 0.71% down on the session.
Since hitting a nine-months high in early-May, the pair has fallen by nearly 3%.
The yen was also lower against the dollar, settling at 110.35.
Bitcoin prices broke through a key $500-level for the first time in almost two years yesterday.
The commodity that suffers the most when the dollar finds strength is of course gold. On Friday gold prices dropped settling at 1210.24.
Any rate hike by the Fed this year is viewed as bearish for the gold, as investors will shift to higher yield assets.
Traders are now pricing in a 28% chance for a rate hike in June and 60% in July – according to CME Group’s FedWatch tool.
In the week ahead, investors will be focusing on Friday’s U.S. nonfarm payrolls report to see if the world’s largest economy is strong enough for another rate hike.
Oil prices also closed lower on Friday, but still posted a third consecutive weeks of gains amid mounting concerns over global supply disruption.
Both Brent and WTI touched the $50 this past week for the first time since October as traders anticipated a drop in supply after multiple disruptions in Nigeria, France, Canada and Venezuela.
In the week ahead, oil traders will focus on Wednesday and Thursday U.S. stockpile data for fresh supply/demand signals. The reports come out one day later than usual due to the Memorial Day holiday today.
On Thursday we will be looking to the OPEC meeting in Vienna.
As prices are rising, we expect for the oil cartel to keep their production quota unchanged.
U.S. stocked rallied after Yellen said she foresees near-term rate hike.
Any rate hike from the Fed this year are viewed as bearish for equities, as investors will shift to safer investments such as government bonds in order to capitalize on higher yields.
*** Holidays in the U.K. and the U.S. today mean low volumes ***
Article to read: http://www.cnbc.com/2016/05/27/yellen-rate-hike-probably-appropriate-in-the-coming-months.html