By Michael Baker

For the seventh time since late 2015, the US Federal Reserve is expected to hike rates in a sign that the economy continues to improve. The CME FedWatch Tool attributes a 93.8% chance that we’ll see a 0.25% rate hike on Wednesday, moving the target range up to 1.75%-2.0%. The Federal Reserve Open Market Committee (FOMC) has often spoken of a potential June hike and such a move would fall in line with previous statements, signalling a gradual increase in the federal funds rate.

US data has continued to outperform with the recent number of jobs beating the consensus numbers on all three headline readings. The current unemployment rate sits at the eighteen year low of 3.8%, gradually pushing up wages across the country. The Federal Reserve Bank of Atlanta is now forecasting an annual growth of 4.6% based on their GDPNow model.

Although a rate hike is the predicted outcome of Wednesday's meeting, the number of future hikes remains unclear. However, with four further meetings and two press conferences planned before the year is up, we really can’t rule anything out.

The EURUSD has given back a lot of its 2017 gains over recent months, with the shared currency dropping as much as 8% from the highs in February. A hike, followed by further hawkish rhetoric, will potentially widen the disparity between the Fed and ECB’s rate path and may also add further weight to the Euro.

EURUSD Weekly Chart, Dollar continues to dominate.


Source: ETX Capital

Higher rates are generally seen as a burden on equities, however, the optimism behind economic growth seems to be negating any threats. US indices continue to push higher, breaking Wall Street out of a long-term triangle, on the back of recent data releases.

Wall Street, Daily Chart, Prices Drive Higher After Technical Breakout.


Source: ETX Capital

Gold trades, on the other hand, have been under pressure in recent weeks as the bulls seem to have abandoned their hopes of higher moves. However, a hawkish hike on Wednesday could be the catalyst for gold to fall even further, as investors look to move from the precious metal to more attractive yielding investments.

Gold, Weekly Chart, Price Attacking Yearly Support Line.


Source: ETX Capital

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