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USD: Wait till next year for Fed rate hike - MUFG

FXStreet (Delhi) – Lee Hardman, Currency Analyst at MUFG, suggests that at this stage it may prove too early to entirely rule out a rate hike from the Fed this year although the likelihood has diminished. The September non-farm payrolls report could exaggerate the weakening of US labour market conditions with other leading indicators still signalling a more favourable outlook.

Key Quotes

“Over the last two months the US economy has created on average 139k jobs/month compared to an average of 214 jobs/month in the previous seven months. The moderation in employment growth in recent months has heightened concerns that the US economy is beginning to lose growth momentum alongside the slowdown in emerging economies. It has prompted the US interest ate market to push out expectations for the first Fed rate hike into next year.”

“The US economy is facing to headwinds to growth from the stronger US dollar and weakening external demand which will be evident in the release this week of the US trade report for August which is expected to reveal a sharp widening of the deficit. However, it is reassuring that US consumer spending still appears to have strengthened boosted by lower oil prices as evident by total vehicle sales rising a new cyclical high in September.”

“Overall, the disappointing non-farm payrolls report is likely to continue to weigh modestly on the US dollar in the near-term undermined by heightened concerns that the US economy is slowing down and dampened Fed rate hike expectations.”

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