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US Fed Hikes Interest Rates - What’s Next?
Written by: PaxForex analytics dept - Thursday, 27 September 2018 0 comments
After a two day meeting of the Federal Open Market Committee or FOMC, the division of the US Federal Reserve which decided on interest rates, a 25 basis point increase in interest rates was announced. This was widely expected by market participants and marked the third 25 basis point interest rate hike in 2018. This took US interest rates to a lower bound rate of 2.00% and an upper bound rate of 2.25%. The interest rate on excess reserves was increased by 5 basis points from 1.95% to 2.00%.
The US Fed moved ahead with its gradual increase in interest rates despite President Trump’s criticism of the central bank and its Fed Chief Jerome Powell who was appointed and praised by Trump himself. Concerns over Trump’s trade war were elevated, but Powell gave an upbeat assessment of the US economy which put December in play for a fourth increase in interest rates. A forecast showed that 12 out of 16 official favor another 25 basis point increase with more to come in 2019.
Trump has attacked the central bank for increasing interest rates, something he has long championed before becoming taking office, at a time his administration is implementing tax cuts and starting trade wars. He said that other central banks are helping their governments and was wondering why he gets no support from his central bank. Many fear that central banks have lost their independence and became a tool for politicians to use in trade as well as currency wars.
Following the rate hike, Fed Chief Powell stated that “This gradual return to normal is helping to sustain this strong economy. This is a pretty good moment for the US economy.”. The FOMC also pointed out a strong economy with a strong labor market and subdued inflation. Powell is trying to gear the economy towards a soft landing while increasing interest rates without triggering a recession. The US Fed has accomplished this only once in its 104 year history. US Fed hikes interest rates - what’s next? The US Dollar is in for an interesting fall and here are three forex trades to enjoy thanks to their profit potential.
A recent breakout above its horizontal support area has taken the AUDUSD into its primary descending resistance level which halted the advance. With plenty of bullish pressures in this trade, another attempt at a push higher is expected. From a fundamental perspective, the Australian Dollar is recevieing a tailwind from the commodity sector. A successful breakout will take this currency pair past its primary as well as secondary descending resistance level in order to challenge its next horizontal resistance level. Forex traders are advised to buy the dips in
As the interest rate differential between the US and Denmark increases, forex traders will make the appropriate portfolio adjustments. This has pushed the USDDKK from the upper band of its horizontal support area above its primary descending resistance level. In the process, bullish sentiment increased and price action is predicted to extend its most recent advance until it will reach its next horizontal resistance level. Buy orders in the USDDKK are favored from current levels down to its primary descending resistance level.
Following a breakdown below its horizontal resistance area, price action in the USDSGD additionally dropped below its primary ascending support level and turned it into resistance. This currency pair paused at its secondary ascending support level, but with bearish momentum dominant a breakdown is expected to materialize. This would take the USDSGD back down into its next horizontal support level. Forex traders are recommended to sell the rallies in order to take advantage of the attractive downside potential.