December 2016 US Rate Rise Seems Less Likely

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December 2016 US Rate Rise Seems Less Likely

December 2016 US Rate Rise Seems Less Likely

The Market and Political View from Adam Jepsen, Founder, Financial Spreads.

- - - Braggadocious Dollar - - -

As expected, the dollar was quickly sold when Trump was in the ascendency on election night.

The speed and size of the rebound was less expected. The dollar recovered its losses against the euro and Japanese yen in a somewhat braggadocious manner.

As Trump started picking up electoral college votes from unexpected quarters, USD/JPY fell sharply. The market dropped 3.3% in 3 hours. However, USD/JPY was back at pre-election levels just 8 hours later.

The euro also had a very-short-term gain against the dollar. EUR/USD rose 2.3% to $1.129 within 3 hours. 7 hours later the dollar had more than pared its losses and the market was trading at its highest levels since 28 October.

Sterling's ride has been less smooth. While there was a sell-off and partial recovery, GBP/USD has seen far more volatility.

This is probably more to do with Sterling still getting support following the 3 November High Court ruling that said the UK Government cannot trigger Article 50 yet.

GBP/USD has been trading between $1.235 and $1.255 but that's still a long way off the pre-Brexit $1.400 - $1.470 area.

- - - December 2016 US Rate Rise Seems Less Likely - - -

There is certainly speculation around the markets that there won't be a US rate rise in December.

The theory is simple.

Although the markets didn't have a post-Brexit-like panic, a Trump Presidency still represents the unknown and potential instability.

With Trump's swearing-in ceremony taking place on 20 January 2017, it's deemed unlikely that a cautious Federal Reserve would raise rates in December.

Even though the Fed is independent, Trump has criticised both Janet Yellen and high(er) rates, and that adds to the argument against a rate rise.

Hillary Clinton's business-as-usual approach may have given the Fed more licence to increase rates but that's a rather moot point.

By Adam Jepsen, 10 November 2016

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