US Economy improving as rate hike approaches

30 July, 2015

Rob Bastin

Yesterday’s trading saw the pound recover a little more ground after last week’s losses, following early morning reports that mortgage approvals were on the increase from last month as well as consumer credit growing more than market expectations. Consumer credit saw a healthy rise from £1.06B to £1.22B and 66.5k new mortgages were approved in June compared to 64.8k in May. These figures gave the pound a boost in early trading although did not continue throughout the day with the markets correcting in the afternoon.

USD markets were relatively quiet when they opened as they were awaiting the key interest rate announcement from the Federal Reserve at 7pm. Much like the Bank of England, the Federal Reserve have recently stated that they are moving towards the first rate hike since the global recession, with markets currently expecting an increase in the September meeting. The monetary policy statement was consistent with this view stating that a strong increase in growth was expected in the second quarter of this year, and that the labour market conditions were improving. The Fed did however re-iterate that further improvements were still needed to warrant a change of monetary policy, along with more concrete forecasts of inflation levels stabilising at 2% in the mid-long term. Whilst the Fed did not specify any timescales for a rate change, the language in the statement has increased the markets view of a 2015 hike, with September remaining the most likely month. Buyers of the USD may wish to consider fixing their rate sooner whilst exchange rates are still some 10 cents higher than they were just a few months ago.

Today is absent of any UK data and instead the focus is on the Euro-zone and the US. Euro data at 10am includes business sentiment and consumer confidence figures. Whilst the afternoon brings latest growth figures for the USA with a steep improvement expected by the markets in Q2, forecasting 1.5% growth compared to -0.2% in Q1. A good figure could well establish a turning point for the dollar with the greenback set to increase in value in the coming months.