Feds Interest Rates Hike Signals Currency Volatility
The Feds Interest Rates Hike Signals Currency Volatility Come 2017
For the first time this year and the second since the financial crisis in 2008, the Federal Reserve hiked the United States interest rates. Though marginal, the 0.25 percent increase has disrupted the world currency markets. The European currencies have been most affected by the recent interest hike that has also signaled the beginning of a high currency volatility come 2017. Nonetheless, what is the impact of the recent dollar gains on the international investors and currency traders across the globe? Sand what changes should they expect in as the dollar ushers in 2017 on a high?
The current dollar gains
With the Brexit and its aftermath, the Italian banking crisis and referendum as well as the Greece debt problem still hovering over Europe fiscal space, major European currencies including the sterling and the pound have been starved. Since the last financial crisis, Europe has been pulling itself from one economically depreciating rumble to another. Compare these to the steady growth the United States has been receiving, and you can tell the reason why the dollar currently stands as undisputed global currency.
Just after the confident interest rate increase, the dollar further withered the sterling that is still struggling to recover from the 31-year low it hit in October. On the other hand, the euro slipped to a 14 year low when compared to the dollar. With these two world giants tumbling, the dollar index reached its highest point in 14 years.
What does this mean for investors?
The recent peak by the dollar against the global currencies has been instrumental in the reduction of the cost imports. Nonetheless, it has also significantly polarized the export market as it makes the economic giants exports less competitive on the world market. This will be quite beneficial to multinational companies, especially the technological giants with operational bases outside the United States seeking to bring their products into the country.
By the end of the first quarter of 2017, the United Kingdom is expected to trigger Article 50 thereby officially initiating its exit strategy from the European Union. Nonetheless, by the first half of the year, the European Central Bank is expected to move forward with its Quantitative Easing project that analysts predict to have a bigger impact than Britain’s exit. Couple this with the swearing in of Trump and the expected political radicalization.
Putting all these factors into consideration, this is perhaps the best time to invest in Europe that is already recovering and is expected to stabilize by the end of the year 2017. Though currently promising with an expectation of three interest rate hikes in the year 2017, the trump factor still has a vital role in the economy’s performance.
Either of these factors though may seemingly independent act has a widespread influence on the dollar’s performance against the rest of the leading global currencies. Nonetheless, the best investors and American residents and other international expatriates can do now is take advantage of the strong dollar standing to send in help to relatives back home and make investments internationally if they seek to enjoy the benefits of a relatively strong currency exchange rate.