Fidelity Says a Strong USD Could Derail June Rate Hike

he Federal Reserve could raise interest rates in June if the dollar doesn’t spike in expectation of such a move, Fidelity Investment’s Jurrien Timmer said Monday.

Earlier on Monday, San Francisco Fed president John Williams told CNBC that while the U.S. economy is doing “quite well,” global developments are feeding back into the dollar and the U.S. economy, preventing the Fed from moving.

Williams and three other regional Fed presidents have said the central bank should begin tightening monetary policy sooner rather than later

The Fed raised interest rates for the first time in nearly a decade in December, but has since held steady. At its last meeting, Federal Open Market Committee members indicated they only anticipate raising rates twice this year, down from earlier expectations of four hikes.

Timmer said the Fed has been stuck in a “tug-of-war” in which the talk of higher rates strengthens the dollar, leading to corresponding weakness in the Chinese yuan. That in turn causes the People’s Bank of China to draw down foreign reserves to offset yuan outflows, which creates volatility in U.S. markets.

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza