Why nterest rate matter

Dünya Executive - - REPORT - Piotr Matys, strategist, Rabobank

The meetings held by the U.S. Federal Reserve and the European Central Bank provided fresh evidence of how significan­t interest rate differenti­als are for the CEEMEA currencies. While the former raised rates by 25bps and, more importantl­y, signaled that two more hikes could be delivered in the coming months and next year, the markets may have to wait until the second half of 2019 for the ECB to start raising rates, as the Fed is set to remain well ahead of the ECB on the path of monetary policy tightening. The prospects of the further widening of interest rate differenti­al between the U.S. and the Eurozone reignited the bullish momentum in the dollar, squeezing USD/CEEMEAs higher and also lifted EUR/ CEEMEAs. The November 2017 high at 95.149 is an essential technical level to watch at this stage in the U.S. Dollar Index. The 61.8 percent Fibonacci retracemen­t at 97.873 would be the next potential target for USD bulls. Based on this bullish scenario for the U.S. dollar we expect the selling pressure on the CEEMEAs currencies to prevail, which may inevitably lead to central banks taking action to support their national currencies. (June 15)

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