US Fed won't raise rates as fast as dot plots suggest, USD remains the best looking horse

An array of topics including the Federal Reserve, Carney, the USD, Asian currencies and scares for 2016 were covered by Neal Kimberley, External Forex Analyst for ActivTrades, when he joined Zak Mir and Bill Hubard, Chief Economist at Bullion Capital, on the Tip TV Finance Show.

What does 2016 hold for the Fed?

Kimberley reflected on the Fed decision yesterday evening to hike interest rates by 25bps by noting that Yellen can’t move much further in terms of tightening as the cost of managing excess reserves for the US central bank just doubled. He continued that the Federal Reserve can’t unpick 9 years of monetary policy in a few months. Kimberley added that markets are illiquid at Christmas, in the New Year people will realise that this won’t be a continuous cycle of hikes.

USD the best bet

Kimberley commented that the US economy is better than most other economies across the world. He added that Draghi and Europe doesn’t want a higher Euro, China wants a weaker Yuan, and he is concerned over the GBP based on Carney’s recent speech, thus meaning that the USD is the best bet.

Asia to follow the weaker Yuan

China know they need a weaker Yuan, and now claim they are looking at a basket of currencies which gives them camouflage to ease against the Dollar, believed Kimberley. He continued that all Asian currencies will therefore have to follow in order to maintain competitiveness. Kimberley concluded that the situation for emerging markets, such as China and Asian economies, is not pretty with US interest rates going up and the high degree of USD denominated debt owned.

UK not hiking soon – Carney a worry

Kimberley expressed that the fact Carney doesn’t want us to know what he is thinking means he can only be considering negatives on the UK economy. He discussed that the people in the UK can’t afford a rate hike, plus the fact that the UK has a large trade deficit and that it doesn’t produce anything only worsens the case for a rate hike from the BoE.

Fears in 2016

Kimberley finished by highlighting possible scares for new year, which included the GBP against the USD, Catalonia, Spain, Portugal and Greece.