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Experts Say: 2017-07-21

Tom Levinson - The senior foreign-exchange and interest-rate strategist

The Fed's decision of the interest rate increase seems to have been made

The expert on the international currency market Tom Levinson considers, that the US Federal Reserve has already decided to raise the interest rate.

As Tom Levinson notes, the Fed has succeed to have a significant impact on the investors' expactations in the run-up to the regular meeting of the Federal Open Market Committee on March 14-15. Now the rate increase by 25 bp to 1.00% is fully taken into account in quotes. Thus, it is unclear what strain the regulator will use talking about the possible tightening of monetary policy. If the new point chart refers to the prevalence of the further rate increase supporters, it will become an important risk factor. The dollar will probably strengthen this year. If the oil market comes under pressure as a result, the USD/RUB pair can turn to be above 60 again.

According to the expert, if last Wednesday there could still have been doubts about the rate increase at the coming Fed meeting, on Friday the publication of data on nonfarm payrolls assuaged them. The decision of the interest rate increase seems to have been made, and for the last two weeks the regulator's representatives, including Janet Yellen, have managed to explain it to the market. The expectations were significantly overestimated. At the end of February the possibility of the March rate increase was estimated at only 50%, and before that, straight after the previous meeting on February 1, at only 30%. Since the end of last month the yield of the two-year US treasury bonds, the most sensitive to a change in rate by the Fed, has jumped by 20 bp to 1.40%, the expert continues.

As Tom Levinston sums up, the markets take the attempts of the US Federal Reserve to change short-term expectations for monetary policy for granted. The S&P 500 index closes to the historic high, volatility is down, the indicators of the financial system state have improved, business and consumer sentiments are very optimistic.

Di Publish: 2017-07-21
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