The interest rates are expected to be held at 0.50% for this coming July 27th, regardless of positive results of economic indicators in June. Job creation and inflation will be the catalysts of the decision.
Let’s sum up the results: Nonfarm payrolls added 287,000 jobs, compared to just 11,000 in the previous month. Producer price index (PPI) increased by 0.2% month on energy products and services. Consumer price index (CPI) also increased 0.2%. Unemployment claims were below an 8% decline for 41 consecutive months.
Despite indicators, this interest rate cycle may be the shortest in American history. The Federal Reserve will meet this Wednesday for the fifth time so far this year. It communicates interest rates eight times yearly, so there are still three more opportunities for possible hikes.
American interest rates have gone through a wide range, from highs of 20% in 1980 to the lowest record of 0.25% in December 2008.
Economic indicators suggest that future rate hikes will get back to normal cycles. However, the committee of the Federal Reserve is still skeptical about the consistency of economic improvement. Inflation target at 2% is still due, and it is the core of the economy's projection of stability and strength. The actual annual inflation is still under 1.7% and the rate of consumption remains at 1.6%.
Forex trading opportunities will be mainly for EUR/USD and USD/CAD pairs for intraday trading. USD/JPY and gold could play as risk-aversion instruments.
This rate decision could be interpreted negatively for the dollar, showing significant drops for USD/CAD from its annual highs at the 1.31 area. EUR/USD could get back to the 1.11 area from its low of 1.10. This scenario will be discounted from Monday until the final hour of the day Wednesday July 27th.