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“One More US Int/Rate Hike”

March 16, 2017

by Asad Rizvi

FED interest rate hike is quite in line of my January 02, “Outlook 2017”  https://asadcmka.wordpress.com/2017/01/02/outlook-2017-global/

As I have predicted 2- Rate Hikes in 2017. My view remains unchanged. In three months Fed has already acted twice, hence, I do not see more than one Hike this year (Dec 2017).

Fed Chairwoman’s tone was clearly Dovish, she was not looking too confident with the current pace of economic growth, probably the future growth outlook is still hazy, which requires gaining momentum.

I think impetus will largely depend on Trump’s Fiscal measures as Policy Shift, Domestic Spending and changes in Tax structure if any would greatly matter to provide acceleration. Chinese slowdown, European Economic Distress and Emerging Market Unrest could also be the hindering factor.

Although US interest rate hike is not supportive for Gold and Currencies, but both moved in opposite direction by gaining ground on short covering that was also helped by rising inflationary pressure.

Ongoing Bullish trend will not be sustainable in medium to longer term, as Yellow metal and Global currencies is likely to exhaust soon.

Interest rate hike does not encourage stock market. It also adds pressure on bond yield, which ultimately surges. But again soon after FED rate hike announcement both moved in opposite direction against market expectation.

10-year bond yield that last week tested 2.63 pct was trading notch below 2.5 pct. Interest rate hike is certainly causing yield curve to steepen. However, my 10-year bond target of 2.90 pct is still valid.

However, tendency of higher US Interest Rate occurrence will add pressure on all Economies opting for Loose Monetary Policy and Emerging Economies Risks Flight of Capital that may ultimately add pressure on its Domestic Currency.

I am expecting currencies to make some more gains before taking dip. Until next FED announcement unless Euro sees weekend close 1.0980, it is more likely to ease, but strong support lies around 1.0350 – 410 zones.

GBP needs to move above 1.2680, which looks tough and may target 1.15-1.18 zones.

While, BOJ opted for no shift in its policy rate, but do watch Japanese 10-year bond yield in medium term, which could gradually inch up by 15-30 basis point. But strong Yen may hinder such move, which needs to break 116 convincingly for 119-120, as key is 111.10 to watch.

View on Gold remains bearish as $ 1250-80 should not break for another down move. Break of $ 1150-70 levels id required for further fall, but buyers on dip will challenge sellers.

(Disclaimer applies in my post, which means that the perspective is my personal view. I have made every effort to ensure accuracy of information provided. However, accuracy cannot be guaranteed. This article is strictly for information and not intended for Trade or Business Transaction). 

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