Fed bolsters outlook for rates rise this year

Thursday, July 30, 2015

Details from yesterday’s FOMC statement added further weight to a rates rise in the coming months as hawkish policymakers at the Fed further outlined their willingness to increase borrowing costs. Citing a robust and improving labour market the central bankers that make up the FOMC expressed their willingness to hike rates, but as always this was accompanied with the caveat that further evidence may be required before a final decision was made. There was no material change to the wording used in the statement as officials saw the economy expanding “moderately”, which could be construed as a bullish comment by central banker standards, but comments on the risks to the US economy which were “nearly balanced” seemed to fulfil the mandate on policymaker parlance, offering a cautiously optimistic outlook.

The dollar resumed its upward rally against its major peers with the dollar index rallying towards 97.250 yesterday with activity early this morning extending those gains for a third day, targeting 97.455 early on. After tempering gains against emerging market currencies ahead of the FOMC rates decision yesterday the greenback resumed its run on emerging market currencies with the MXN and RUB feeling the pressure once again. Investors have been encouraged by the prospect of tightening monetary policy in the US and as a result the dollar has gained almost 9% against its major peers year-to-date and has experienced significant gains against most emerging market currencies. With Q2 GDP data expected later today and a string of labour market and productivity data between now and the September FOMC meeting we could see further dollar strength as investors position themselves for the prospect of higher rates in the US.  

Crude oil prices managed to lift for a second session yesterday as improving supply data halted the recent downward moves in both front month Brent and WTI futures. Official EIA crude oil inventory data released yesterday saw US stockpiles of crude post a surprise decline during the week ending July 24th, drawing down by 4.2m barrels against expectations of a modest 134K barrel build. The sharp decline in stocks stands in stark contrast to the previous week’s 2.46m barrel build and saw front month WTI futures build on Tuesday’s gains as prices targeted $49.50/bbl at one point before paring some of these gains, ending the session 2% up at $48.79/bbl. Front month Brent futures managed to post moderate gains with a brief rally above $54/bbl early on, however, the global benchmark was more responsive to current global fundamentals and with Iran anticipated to add substantially to global supplies, front month futures capped gains at a modest 0.7% for the day after bolstering support at the recent low towards $52.50/bbl.   

DXY back on the rise on Fed outlook

DXY Curncy DOLLAR INDEX SPOT 2015 07 30 07 49 19

Brent prices find support at recent low

CO1 Comdty Generic 1St CO Fut 2015 07 30 07 35 26

Events for today

1000

EZ

Jul

Bus Climate & Con Sentiment

1330

US

Q2

GDP & Personal consumption

1330

US

w/e

Jobless Claims

1530

US

w/e

EIA Nat Gas

Topics: US Fed, USD, Crude oil, Brent, WTI, RUB
More from: Kash Kamal