Will the IMF prediction of lower growth be supported by the UK’s GDP figure, will the FOMC keep rates at 1.25%, despite the pressure the dollar is under?

Jul 25 • Extras • 1564 Views • Comments Off on Will the IMF prediction of lower growth be supported by the UK’s GDP figure, will the FOMC keep rates at 1.25%, despite the pressure the dollar is under?

On Monday the IMF published fresh data with its projections for 2017 global growth, it revised its prediction for the UK’s growth, down from 2% to 1.7%. It must be noted that the IMF are notoriously over optimistic with regards to international growth and that the UK’s Q1 official ONS growth figure came in at 0.2%, missing the circa 0.5% forecast by some distance. The forecast is for growth of 0.3% for Q2, when the latest GDP data is published on Wednesday morning. Should the forecast be proven correct, then analysts and investors will quickly deduce that annual growth will be circa 1%, on a projected basis.

With sterling coming under pressure versus the euro recently, as Brexit talks begin to enter the negotiation stage, the UK’s latest GDP quarterly growth figure could cause sterling currency pairs to move, irrespective of the print. If the figure beats, misses or comes in right on the forecast, there is a significant possibility that sterling will react to what is always a high impact news event, that’s now taking on more significance, given the UK’s economy appears to be already feeling the effect of the June 2016 referendum decision.

The FOMC (Federal Open Market Committee) is a committee of the heads of the various nationwide Federal Reserves in the USA, who meet eight times a year, generally over a period of two days, to discuss and set monetary policy and (as a central bank), to reveal their decisions, regarding the key interest rate decisions. Rates have risen twice in 2017, the main rate is now 1.25%. Despite these raises the dollar has fallen sharply versus many of its main peers in 2017, in particular versus: the Swiss franc, euro, yen, Aussie dollar, Canadian dollar and sterling. The Federal reserve chair Janet Yellen appears unperturbed by this fall, which can (initially) be of limited benefit to exporters. The Fed is notorious amongst central banks in not announcing an inflation target, or using rates to effect inflation, which is below 2% currently in the USA.

Analysts polled by Bloomberg and Reuters are unified in their belief that there’ll be no raise announced on Wednesday evening. However, it’s the narrative that accompanies the rate decisions that many analysts and investors monitor carefully, given that the accompanying statements offer up clues, in terms of forward guidance of monetary policy, as to where the FOMC is looking to steer the USA economy, over the short to medium term. With the dollar under pressure and the previous intimation that the FOMC were looking to enact three rate rises in 2017, the final one loosely scheduled for the end of 2017, investors will look towards the statement for any variance and adjust their dollar bets accordingly.

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