Fed’s Lacker Claims Smaller Connection between US and China Economies than Markets Fear
The recent slowdown in China has cast doubts over whether the US Federal Reserve will be able to continue raising interest rates. However, Fed Member Richmond Lacker has claimed that the economies of the US and China aren’t as intertwined as the recent market volatility suggests. Lacker does not vote on interest rates but is present at the deliberations and has stated again that he would like to see four further interest rate hikes in 2016.
Société Générale Strategist Warns New Financial Crisis Will Trigger Eurozone Collapse
A strategist for the French-owned Société Générale has predicted another financial crisis, warning that it could cause the Eurozone to collapse. Albert Edwards told delegates at a conference in London that turmoil in developing economies will trigger another recession in the US, claiming the state of the US economy is far worse than the Federal Reserve predict.
The Euro is currently trending down against the majority of currencies following the news.
US Small Business Optimism Remains Below Average
Small business optimism continues to be stuck in a rut, with a growth of just 0.4 points leaving the index below its 42-year average of 98. Considering small businesses account for around half of private US GDP, below-average confidence is a bad sign of future growth. There is a net increase in the percentage of firms looking to hire more staff, however the net businesses reporting increased quarter-on-quarter sales remained at -5%.
Goldman Sachs Favours European Stocks for Growth Potential
With European stocks having slumped, there is the potential to buy while prices are low and make strong gains, according to Goldman Sachs. According to Goldman Sachs, the US share market is reaching the end of a bullish run, while European stocks will be bolstered by continued efforts from the European Central Bank (ECB) to support the economy.
The Euro is making small advances against the US Dollar (EUR/USD) today after dovish speeches from Federal Reserve Governors dashed investor hopes of a Q1 interest rate hike.
Merkel Responds to Refugee Crisis, EUR/USD Exchange Rate Advances
Europe is currently in the grip of the biggest refugee crisis since the Second World War, creating tension within the union as countries arguing for tighter border controls clash with those demanding more be done to help those fleeing war-torn countries like Syria. All mainland European countries are committed to passport-free movement across borders since the Schengen Agreement was signed in 1985, however since the start of the current crisis there have been calls to reinstate border controls. The concerns are in part driven by a fear that terrorist groups are smuggling members into Europe under the guise of refugees. Since the tragic attacks in Paris in November last year, anti-migrant sentiment has been on the rise.
German Chancellor Angela Merkel has been under political pressure to act, a pressure that has heightened after multiple assaults on women during New Year’s Eve celebrations in several European cities were committed by groups of men that included migrants. In a speech yesterday, Angela Merkel expressed concerns that closed borders would harm the European Union, although she acknowledged that more needed to be done to strengthen the EU’s external borders.
Investors appear to believe that her intentions will be carried out as the Euro is performing well today.
The EUR/USD exchange rate is currently trending around 1.0877.
US Dollar to Euro (USD/EUR) Exchange Rate Falls as Fed Policymakers Claim No Q1 Rate Hike
After hiking rates for the first time in nearly a decade, putting a seven-year period of near-zero interest rates to an end, the Federal Reserve is by no means decided upon the path of future rate hikes. After suggesting that there could be four further rate hikes in 2016, the Fed had investors speculating that the first could happen in the first quarter of the year. However, two Federal Reserve members have tried to reign in expectation, claiming that the anticipated four rate hikes was a guide rather than a commitment by the Fed.
Dennis Lockhart has warned that there will likely not be enough data available on inflation and the state of the US economy to warrant another interest rise in Q1, with Robert Kaplan adding that they have to wait and see what develops before each policy meeting.
According to Kaplan, ‘We went through this in August and September, we paused, we watched, we let events unfold, which is the right way to handle it, and we saw ultimately that underlying economic conditions remained intact and solvent,’ adding that, ‘There’s no substitute for time in assessing economic data as it unfolds.’
The USD/EUR exchange rate is currently trending in the region of 0.9201.
Euro to US Dollar (EUR/USD) Forecast: More Speeches Could Provide Exchange Rate Movement
Further speeches by Federal Reserve members, this time Stanley Fischer and Jeffery M. Lacker, could further clarify the attitude of officials towards future rate hikes, while the European Central Bank’s (ECB) Sabine Lautenschläger could give Euro investors something to ponder.
The Euro to US Dollar (EUR/USD) exchange rate is currently trading between 1.0839 and 1.0900.