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Five most important news to start your day. These events are very likely to influence the market and trigger exchange rate fluctuations. Read to stay informed.

Fed Raises Interest Rates

janet-yellenFor the second time in just three months, the Federal Reserve has raised the interest rate. Benchmark lending rate was increased by a quarter of percentage point and is now equal to 1.25%.  The Federal Reserve also started selling its holdings of bonds and other securities, signaling the positive outlook on the US economy. More than that, another hike is forecasted by the Fed officials to take place this year.

During the press conference Janet Yellen, the Fed’s chairman, made the following statement: “What I can tell you is that we anticipate reducing reserve balances and our overall balance sheet to levels appreciably below those seen in recent years but larger than before the financial crisis.” Higher interest rates universally lead to the appreciation of the national currency.

Oil Shrinks

Oil prices have recently lost 3.5% and reached the level of $45 per barrel, the lowest since November 2016. The increase in US gasoline inventories and smaller than expected contraction in crude reserves are stated as the prime reason. Increased supply from non-OPEC countries, namely the United States, Canada, and Brazil can trigger further deterioration of oil prices in 2018. Under current market conditions, bullish oil sentiments are not widely observed.

UK Real Wages Fall

Real and nominal wages in the UK
Real and nominal wages in the UK

Basic pay in the Island Nation grew 1.7%. However, considering a four-year-high inflation of 2.9%, turned to negative with a staggering 0.6% decline in real wages. Theresa May, current Prime Minister of the United Kingdom, may find it difficult to restructure and restart the British economy. Not-so-successful parliamentary elections and struggling economic performance may add to the political instability in Great Britain, negatively affecting the exchange rate of the GBP.

Consumer Prices, Retail Sales Decrease

Both US consumer prices and retail sales fell in May, with the latter witnessing the biggest drop in 16 months. Lower gasoline prices and decreasing new car sales are said to be responsible. An indication of lowering consumer demand, these two metrics can prevent the Fed from driving benchmark interest rate further up. Following the disclosure of US economic data, the USD fell to a seven-month low but later retracted.

China’s Interest Rates Unchanged

pbcDespite the Fed’s decision, China’s central bank refused to reevaluate interest rates and left them unchanged. No reasoning was provided to the public. In March, when the Fed hiked benchmark interest rate for the first time in 2017, the People’s Bank of China reacted within hours, mirroring the decision of its American counterpart. Slower than expected economic growth and ever-increasing reliance on debt are among the possible reasons for unchanged interest rates.

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NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future


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