US dollar deposits rise before rate hike
Piegza has said that the Fed did speak regarding the possibility of an interest rate hike during 2015 to the point that not doing it will make markets and investors lose faith in its word.
The dollar had gone up to a 7 month high last Monday because of the hawkish like comments from the regional U.S. Federal Reserve president during the weekend which cemented the expectations of interest rate hikes further for December.
The results have shown that the primary dealers are believing that the neutral rate, the cost of borrowing, after being adjusted for inflation, will rise in almost a straight line by 2018 to 1.5%.
The dollar index is currently up 0.2% due to a discount rate change but the surprise may just be that this meeting before the December announcement is nothing but a technical meeting.
William Dudley of the N.Y. Fed said that they hope they will become confident of the inflation reaching 2% soon.
Gold fell by almost a percent on Monday and headed back towards its almost 6-year low.
Earlier this month, Williams had said that the next move by the bank would be to start increasing rates, but he didn’t say when this was going to happen. The calculation takes into account the effective funds rate average of the Feds of 0.375% post the 1st increase. This has been compared with the 0-0.25% current target range. A lot of economists have begun forecasting December as well.
The European Central Bank and the People’s Bank of China have also made moves to try and reduce the rate of interest or pump liquidity into their systems.
The Bank of Japan chooses to remain committed to the Abenomics though and has chosen its own version of the quantitative easing measures in order to pump the economy and then raise the rate of inflation. The dollar was just a little lower against the Japanese Yen at 122.83.
A rapid rally from the US dollar will be expected if the discount is hiked today even if the rate is utilized little by banks. It is uncertain if these gains are going to be impacting equity markets though.