Since December and the last rate hike, the Dollar Index has continued going down in the face of increasing domestic and international risks. Yesterday, the FOMC decided to keep interest rates unchanged, the Fed Funds rate staying in a range of 0.5% to 0.75%. This unanimous decision was expected from investors, who anticipated a 38% chance of a rate hike in March before the FOMC meeting. After the minutes were released, the odds of a rate hike in May increased to 52%, and to 75% for June.
Image 1: Dollar Index – Daily
As shown in the daily chart above, the Dollar Index has been decreasing since the end of December, after the FED increased its key rates for the 2nd time since 2010. Prices are currently trading within a bearish channel, just breaking through the bottom of the Ichimoku cloud. It’s important to pay attention to the way prices are going out from the Ichimoku cloud as they’re considered trendless. If prices keep going down, they may move towards the support level at 98.995.
The FED minutes don’t contain anything new about the rates direction we can expect in 2017. All FOMC members now agree on how the decisions made by the new President of the United States may boost growth and inflation.
Gradual Rate Hikes Can be Expected
“The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate”, which should stay low “in the long run”. The FED notes, however, that the data available in the meantime may change its outlook on growth, employment and inflation. FOMC members will therefore continue to monitor economic data on inflation and employment, as well as any international developments that may impact the United States.
Strong Labor Market
The minutes read: “The labor market has continued to strengthen and economic activity has continued to expand at a moderate pace” Recently, confidence in the US economy and its outlook has resulted in continued strong gains in job creation, as well as a low unemployment rate.
One of the most important reports on the employment situation in the United States is that of the NFP. As we said in a previous analysis, this report includes several studies that allow us to understand the strength or weakness of US unemployment numbers, as it takes into account almost 80% of the country’s labor force.
Tomorrow, like the 1st Friday of every month, the US Department of Labor will release its NFP report for the month of January. Job creation is expected to increase by 170,000, with an unemployment rate of 4.7%. Remember to monitor signs of inflationary pressures on wages, as well as the participation rate.
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