It seems investors’ expectations for an increase in interest rates are going to end up in a disappointment; especially in view of the fact that the Federal Reserve is sceptical about raising the rates not only in March, but for the rest of the year, as well.
This is majorly due to a fall in the U.S. Treasury yields and the subsequent drop in the dollar, as well. Goldman Sachs Group Inc. even stated they no longer feel a rise in the rates in the next couple of months, due to this very reason itself. This certainly raises further concerns about the health of the U.S. economy.
The U.S. currency has experienced a sharp drop against the Euro, Yen, the Canadian dollar, as well as the Australian and the British pound.
Besides, the increasing prices of oil are also adding up to the uncertainty of this situation furthermore. An eight percent rise was observed in oil prices last Wednesday. The commodities are available at a much cheaper rate as compared to the last time, due to the sudden fall of the dollar index over the past few weeks.
The traders met with utter disappointment as they were expecting the interest rates to rise several times this year. “The market came into 2016 expecting that U.S. rates will go higher while rates in other countries fall. Now, expectations for a rate increase are being aggressively reduced in the currency market, and that is being priced into the dollar,” said Shahab Jalinoos, an analyst at Credit Suisse Group AG.
However, a strong recovery is predicted in the latter part of this year, taking into account the recent U.S. job growth. President of the Federal Reserve Bank of New York, William Dudley was even heard marking the recent market turmoil to be the initiator of altering the U.S. growth output. At the same time, Lael Brainard, a Fed governor, feels otherwise.
Given the “market volatility and the “weak emerging – market growth” is going to further slow down the interest rate progress.
“Recent developments reinforce the case for watchful waiting.” Ms. Brainard said.
While, last year; a prevailing percent of more than fifty expected a rise in the interest rates, this year, however; only a 40% probability has been observed.
Investors can only wait and watch whether or not the employment numbers will provide the support that the U.S. economy requires at the moment. The Fed hasn’t as yet indicated any signs of tightening any monetary policies. Still, investors have been bracing themselves for what may come next.
An increased number of investors have been observed betting on “a continued rally in the greenback.” They are, however, fast in closing those positions as soon as the dollar rate had fluctuated. This has further caused the U.S. currency to weaken.
According to the data from the Commodity Futures Trading Commission and HSBC holdings, “Net bets on further rises for the dollar stood at 26.3 billion dollars as of 26th January, 2016.