US Fed to hike rates this week, but markets question further hikes through remainder of 2017
Apart from the UK election debacle, and subsequent sharp GBP sell-off, general FX volatility remained surprisingly low last week. The main focus of attention this week will be the US Federal Reserve monetary policy meeting early Thursday morning (4.00 AEST), that is 95% certain to deliver another 25 basis point rate increase, but beyond that traders are far from convinced that US economic growth and inflation justify further hikes in 2017. Overall monetary conditions in the US have in fact softened through the first half of the year, as equities remain high, medium/long term interest rates are low and a weaker USD make a mockery of official short term rate hikes and forecasts. The appetite, or possibly the capacity, of corporates to borrow more money and drive growth looks to be fading in both China and the US, which doesn’t bode well for global growth that has been fuelled by record amounts of leverage in recent years. Geo-political risk remains high cross the globe, as North Korea, Syria/Russia and now Qatar/Iran keep the possibility of a significant escalation in international tensions front and centre.
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