Rate hike is inevitable but high would it be?…Rate dynamics and recommendations on USD-CHF and USD-CAD. by OpenForex.com

Rate hike is inevitable but high would it be?…Rate dynamics and recommendations on USD-CHF and USD-CAD.

14:35 06/16/2004

Rate hike is inevitable but high would it be?…Rate dynamics and recommendations on USD-CHF and USD-CAD. If we sum up yesterday events, we can say that now almost no one doubts rate hike that is expected at the nearest FRS meeting due the end of June. The main intrigue is how high would the rates be raised. Earlier, market participants expected FRS to raise base interest rate target 50 points higher. However, following the statement of FRS chairman Alan Greenspan, who said inflation would be of no great concern in the nearest perspective, investors are inclined to think that interest rates will be raised gradually and not higher than 25 base points at the nearest FRS meeting. Yesterday, the dollar fall was provoked by USD/JPY rate, which had lost more than two patterns in three-hour time and had fallen down from 111.40 to 109.30. That very fall resulted in dollar decline against other major currencies. Besides, CPI, excluding food and energy, coincided with the forecasts, which also reduced the possibility of raising interest rates 50 base points higher in the U.S. Let us remind that CPI made up +0,6% in the U.S. in May, forecasted +0.5%, previous value equaled +0.2%. CPI, excluding food and energy, made up +0.2% in the U.S. in May, which was as forecasted. Business inventories in the U.S. in April made up +0.5% (previous value equaled +0.7%). NY Fed Empire State manufacturing index for June made up 30.2 (previous value equaled 30.2). However, surprises followed. Preliminary index of Michigan sentiments index made up 95.2, forecasted 90.5, previous 90.2. It is natural that the given index together with the rise of American stock exchange indexes could support the dollar against major currencies and stopped dollar decline that started yesterday. The U.S. Department of Trade said foreign investors purchased American assets for the sum of 76.2 billion dollars in April (previous value equaled 80.7 billion dollars). It had been noted that the given sum was enough for reimbursing the deficit of payments balance in the U.S. Positive data on the U.S. economy followed. Industrial production in the U.S. in May made up +1.1%, forecasted +0.6%, previous +0.8%. Economic potential capacity in the U.S. in May equaled 77.8, forecasted 77.4, previous 76.9. New homes made up 1.967 million in the U.S. in May (previous value was revised from 1.969 million to 1.981 million). Issued construction permits made up 2.077 million in the U.S. in May (previous value was revised from 1.999 million to 2.006 million). Having cut numerous dollar “longs’, yesterday correction made us believe stronger in further rise of American currency. Recommendations: we recommend keeping earlier opened long positions (the ones opened last week). Recommendations: we recommend keeping earlier opened long positions (the ones opened last week).

The forecast was created by trans1.