The US Dollar and The Interest Rates

   Schwaben Blog

September 25, 2015

Weekly Statistics:

Today Week Ago Year Ago
25-Sep-15 18-Sep-15 25-Sep-14
S&P TSX 13,380 13,646 15,026
S&P 500 1,931 1,958 1,965
DJIA 16,315 16,385 16,945
OIL $45.58 $44.92  $89.37
USD vs CAD 0.7507 0.7604 0.9051
Gold $1,146 $1,138  $1,226

After deciding to keep interest rates steady during the last meeting, the Federal reserve chairperson, Janet Yellen, commented yesterday that most members on Federal Open Market Committee (FOMC) still expect a rate increase in 2015. She also said that “Prospects for the US economy generally appear solid”. Her comments are supported by this morning’s report from the Commerce department, which states that the US economy grew at an annual rate of 3.9 percent compared to the previous forecast of 3.7 percent. A significant correction in oil prices could also be partially responsible for this stellar growth. This boosted the confidence of investors after the last FOMC meeting gave them some jitters about the growth of the US economy. Most of the major economic indicators are pointing towards a healthy and growing economy, and raising interest rates by 25bps would not prove catastrophic. Although there could  be a short-term correction in equity markets, a hike in interest rates would  signal that the US economy is strong enough to absorb a rate hike after almost a decade, however this does not alleviate the concern of falling inflation especially with a rise in interest rates. A stronger dollar could also  lower inflation as it suppresses import prices. The US dollar index, which measures the performance of US dollar against a basket of six currencies, has significantly appreciated on a year-over-year basis and is almost at the highest level for a decade resulting in disinflation for US consumers.

Source- Bloomberg, Globe Investor Gold, Financial Post, Market Watch, Trading Economics

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