Today, almost one hour ago, Fed Chairman Janet Yellen spoke about the Federal Open Market Committee’s decision to leave Federal Funds rates unchanged. The status of the American economy is not sound enough to justify a unanimous rates hike at this specific moment. Labor conditions have improved but not to a satisfactory level. Consumer spending has been sluggish, Retail Sales reported modest improvements. Inflation has not reached yet the target of 2%, although Oil price decline boosted consumer’s purchasing power. Fed Chairman sees in the forthcoming months moderate growth, and a modest but stable recovery. If the US economy will meet the Committee’s targets, the hike will come. The Financial Community warned against a premature rates increase, notably Christine Lagarde from IMF. Federal Reserve representatives see the second half of 2015 as most likely for a change in Monetary Policy. Bond prices have already started to adjust to possible inflation spikes, both in Continental Europe and US. American Equities have digested relatively well the news, reporting moderate daily gains.
Let’s see what the next Fed statement will tell us.
EUR/USD Week Recap | 18th-22 th May 2015
This past week, The EUR/USD pair followed a bearish trend, starting its decline back on Monday going from 1,1466 to the three weeks lowest level of 1,1013 as Friday 22th. EUR depreciation was expected as an ECB Officer recently spoke about a boost of the QE in the months of May and June, as a manner of contrast to the expected bond market slowdown in July and August. QE is generally negative for a currency as it contributes to drive rates down. On top of this, Greece troubled position still remains unclear to the market and an exit could not still be excluded, and this event for some could be as harmful for the European Financial Markets as the Lehman’s chapter 11.
On the other side, US economy is performing weaker than expected as shown from data such as manufacturing and retail sales that led to a downward revision of the first-quarter annualized growth rate, initially estimated at 0,2%. Moreover, consumer spending is generally low, even though an increase due to low oil price was expected and this brought concerns about the status of real economy. Industrial and manufacturing production are still below expectations. For these reasons, several FED officers strongly believe that the interest rate hike will definitely be postponed.
Next week it is expected to be very calm for the EUR/USD pair, as very few new macroeconomic data of minor importance will be released. According to my analysis, unless some changes occur with Greece, the EUR/USD pair will keep stable with minimal EUR depreciation (EUR/USD goes down) as the overall outlook of the American economy seems more substantial and stable than the European one.
Ludovico Buffo, Master Student