The minutes
of the two-day U. S. Federal Open Market Committee meeting which concluded on
October 29th last were released yesterday. The statement that was
issued after that meeting left the Forex and other markets with the belief that
the beginning of a rate rise cycle stateside was now a probability, rather than
just a possibility. We now know the basis for this. The minutes say:
“… some
participants thought that the conditions for beginning the policy normalization
process had already been met. Most participants anticipated that, based on
their assessment of the current economic situation and their outlook for
economic activity, the labor market, and inflation, these conditions could well
be met by the time of the next meeting”.
On the other
hand, the minutes also show considerable caution and a real concern that the
very use of the phrase “the next meeting” could give the impression that a
December rise was a done deal. This is most definitely not the case. It remains
a matter of waiting to read the data that comes out in regard to inflation and
employment in advance of that meeting.
The market still expects a U. S. rate
rise in December, but the odds are now lower
The CME
group (Chicago Mercantile Exchange) facilitates trading in options and futures.
By analysing the open positions, both long and short, in the futures that they
broker which contain the U.S. dollar as a component, they can determine the collective expectations of market participants. The result is classified as the extent to
which the market has “priced in” a rate rise (or some other factor that could
result in movement in said dollar). Very interestingly, the CME figures this
a.m. show that the market now sees ‘only’ a 67.8% chance of a rise in December,
as against 72% before the release of the minutes yesterday.
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