Monday, 14 September 2015

Will they or won't they? cruch time for the Federal Reserve.

Good afternoon,

It has been a relatively quiet day for the GBP/USD cross with the currency pair finishing the day around half a cent off its opening price. With little to write home about in regards to eco-stats, all eyes are firmly fixed on the U.S Federal Reserve and their two day meeting which starts on Wednesday.

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Come Thursday evening we will finally know if the FOMC plan to raise interest rates for the first time since 2006. However, with more disappointing coming from China this morning the chances of the Federal Reserve taking any action now seem slim.

Concerns over an economic slowdown in China have seen bets trimmed on the Federal Reserve hiking rates this month. In fact U.S. interest rates futures are now suggesting traders see around a 1 in 4 chance the Fed will raise interest rates on Thursday evening.

So if the Fed keep rates on hold will GBP/USD go up?

Not necessarily, even if the Fed choose not to act this month they could still drop so clues as to when the rate rise might occur. All the talk has been that if it doesn't happen this month then it could happen in December.

If that is case and the FOMC confirms a rate hike is likely to happen towards the end of the year we could still see the dollar strengthen.

With all the volatility we have seen over the past few weeks I think the markets are looking for a little bit of reassurance. If the Fed's comments mirror those of the Bank of England last week, we could easily see investor flows into the dollar increase which in turn could push GBP/USD back towards the $1.52 mark we witnessed a few weeks ago.

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